Tx notes fa22 Final

June 2023 to March 2024 exams
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Illustration 7
(a)
Snowdrop Ltd has annual sales of £120,000, all of which are standard rated and are to the 
general public. The company’s standard rated expenses are £6,000 p.a. These figures are 
inclusive of VAT. The relevant flat rate percentage for Snowdrop Ltd’s trade is 15%. Using the 
normal basis of calculating its VAT liability, Snowdrop Ltd will have to pay VAT as follows:
If Snowdrop Ltd uses the flat rate scheme then it will pay VAT of £18,000 (120,000 
×
15%). 
There is a VAT saving of £1,000 (19,000 – 18,000) in addition to the simplified administration. 
As none of Snowdrop Ltd’s customers are VAT registered, there will be no need to issue VAT 
invoices.
(b)
Primrose Ltd has annual sales of £96,000, of which 50% are standard rated and 50% are zero-
rated. All of the company’s sales are to VAT registered businesses. The company’s standard 
rated expenses are £30,000 p.a. These figures are inclusive of VAT. The relevant flat rate 
percentage for Primrose Ltd’s trade is 6%. Using the normal basis of calculating its VAT 
liability, Primrose Ltd will have to pay VAT as follows:
If Primrose Ltd uses the flat rate scheme then it will pay VAT of £5,760 (96,000 
×
6%). Although 
the flat rate scheme will result in simplified administration, it is not beneficial as additional VAT 
of £2,760 (5,760 – 3,000) is payable and Primrose Ltd would still have to issue VAT invoices as 
its customers are registered for VAT.
£
Output VAT (120,000 
×
20/120) 
20,000 
Input VAT 6,000 
×
20/120) 
(1,000)
VAT payable
19,000
£
Output VAT (96,000 x 50% x 20/120)
8,000
Input VAT (30,000 x 20/120)
(5,000)
VAT payable 
3,000

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