ACCA Advanced Taxation (ATX) Practice Exam

What are the two possible VAT treatment options for the sale of a business?

1. Exempt supply or zero-rated supply

2. Normal taxable supply or transfer of a going concern

3. Subject to CGT or exempt

4. Nil-rated supply or value-added supply

The correct answer is: Normal taxable supply or transfer of a going concern

The two possible VAT treatment options for the sale of a business are indeed a normal taxable supply and a transfer of a going concern. When a business is sold, the VAT treatment depends on whether the sale constitutes the transfer of a going concern (TOGC) or is dealt with as a normal taxable supply. In the case of a transfer of a going concern, the sale can be treated as outside the scope of VAT. This treatment applies under specific conditions, allowing the buyer to continue operating the business without incurring an immediate VAT charge. This is advantageous because it prevents the seller from needing to charge VAT on the sale while allowing the buyer to inherit the business's VAT status. On the other hand, if the sale is considered a normal taxable supply, VAT will apply at the standard rate, which can impact the overall cost of the transaction for the buyer, who may not be able to reclaim the VAT depending on their own VAT status and future use of the assets acquired. The other choices do not accurately reflect the established VAT treatments in the context of business sales. The mention of exempt or zero-rated supplies pertains to different categories of goods and services rather than to the sale of a business specifically. Similarly, capital gains tax (CGT) or exempt