ACCA Advanced Taxation (ATX) Practice Exam

What is the result of a sale adjustment in the VAT capital goods scheme during the adjustment period?

1. Final adjustment depends on whether the sale is a taxable or exempt supply

2. No adjustments are necessary for sales

3. Additional VAT is paid to HMRC

4. All sales during this period are VAT exempt

The correct answer is: Final adjustment depends on whether the sale is a taxable or exempt supply

The correct answer centers on the underlying principles of the VAT capital goods scheme, particularly how sales adjustments are handled during the adjustment period. The capital goods scheme allows businesses to adjust the VAT they have claimed on the purchase of certain capital assets over a specified period, typically 10 years, based on the actual use of those assets for taxable versus exempt supplies. When a sale occurs during the adjustment period, the nature of that sale—whether it is a taxable or exempt supply—plays a critical role in determining the final adjustment of VAT reclaimable or payable. If the sold asset has been used for making taxable supplies, the VAT that was initially claimed may need to be adjusted based on this sale. Conversely, if the asset has been associated with exempt supplies, it could lead to a requirement for repayment of some of the reclaimed VAT. Thus, the necessity to evaluate the type of supply from the sale during the adjustment period directly influences the financial outcomes for VAT purposes, making the first choice the most accurate reflection of the situation under the scheme. While others may touch on aspects of VAT adjustments, they do not address the crucial connection between the sales classification and the VAT implications as comprehensively.