Tx notes fa22 Final

June 2023 to March 2024 exams
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2. The Tax Point 
(a)
It is very important to correctly identify the time of supply or tax point, as this determines when 
output VAT will be due.
(b)
The VAT rules that determine the tax point in respect of a supply of goods are as follows:
‣
The basic tax point is the date goods are made available to the customer or service 
completed.
‣
If an invoice is issued or payment received before the basic tax point, then this becomes 
the actual tax point. 
‣
If an invoice is issued within 14 days of the basic tax point, the invoice date will usually 
become the actual tax point. 
3.
 
Output VAT and Input VAT 
3.1. Major points 
There are several important exam points regarding output VAT and input VAT as follows:
(a)
VAT is chargeable on the actual amount received where a discount is o
ff
ered for prompt 
payment. If the discount is not taken the VAT is charged on the full sale price and if the 
discount is taken then the VAT is based on the discounted price. 
(b)
Relief for irrecoverable (impaired) debts is only available if the output VAT has been accounted 
for and paid and debt is over six months old as measured from the time that payment was due.
The relief is claimed as input VAT on the VAT return.
(c)
Input VAT cannot be recovered in respect of business entertainment of UK customers or on 
motor cars (unless they are used 100% for business purposes). 
(d)
Input VAT cannot be recovered in relation to private use by a proprietor of a business.
 
Example 4
 
 
Rose Ltd is registered for VAT, and its sales are all standard rated. The following information relates 
to the company’s VAT return for the quarter ended 31 March 2023:
(1)
Standard rated sales amounted to £120,000. Rose Ltd o
ff
ers its customers a 5% discount for 
prompt payment and half of the customers took advantage of this discount. 
(2)
Standard rated purchases and expenses amounted to £35,640. This figure includes £480 for 
entertaining UK customers. 
(3)
On 15 March 2023 the company wrote o
ff
irrecoverable debts of £2,000 and £840 in respect of 
invoices due for payment on 10 May and 5 December 2022 respectively. 
(4)
On 31 March 2023 the company purchased a motor car at a cost of £16,450 for the use of a 
salesperson, and machinery at a cost of £21,150. Both these figures are inclusive of VAT. The 
motor car is used for both business and private mileage. 
(5)
Unless stated otherwise, all of the above figures are exclusive of VAT.