ACCA Advanced Taxation (ATX) Practice Exam

For the remaining adjustment period after disposal in the CGS, how is taxable use determined for a taxable supply?

1. 50% taxable use

2. 100% taxable use

3. 75% taxable use

4. It cannot be determined

The correct answer is: 100% taxable use

In the context of capital goods scheme (CGS) adjustments, determining the taxable use after disposal of an asset is essential for calculating the adjustments for input tax. When a taxable supply is made, it is generally accepted that the taxable use is fully attributable to the VAT incurred on that asset because the expectation is that the asset has been utilized entirely in furtherance of taxable activities. In this case, indicating 100% taxable use signifies that the asset was exclusively used for making taxable supplies before its disposal. Therefore, during the adjustment period following disposal, the taxable use remains at 100%. This indicates that full recovery of VAT was applicable when the asset was acquired, and no further adjustments are required post-disposal. In contrast, the other options suggest a mixed use scenario or an inability to determine taxable use, which wouldn't typically apply when there is clear evidence of well-defined taxable use prior to disposal. Thus, the determination of 100% taxable use aligns with the principles of the CGS, which emphasize accurate tracking of the intended business use of capital assets, ensuring that VAT treatment reflects the actual economic activity undertaken with the asset.