ACCA Advanced Taxation (ATX) Practice Exam

What is the VAT treatment of the sale of new freehold commercial buildings that are less than 3 years old?

1. Standard rated

2. Exempt

3. Zero rated

4. Not subject to VAT

The correct answer is: Standard rated

The VAT treatment of the sale of new freehold commercial buildings that are less than 3 years old is indeed standard rated. In the context of VAT, a 'new building' is defined as one that has not been occupied for the first time or it has been constructed within the last three years. The sale of such a building typically attracts VAT at the standard rate unless certain conditions apply. Standard-rated sales mean that VAT is chargeable on the full selling price of the building, which allows the seller to recover input VAT on related expenses. This is beneficial for businesses that are VAT registered, as they can offset the VAT charged on purchases against the VAT they collect from their customers. While some other treatments such as zero-rating might apply in specific circumstances (e.g., certain sales to charities or in cases of residential properties), they do not generally apply to freehold commercial buildings. Exempt or not subject to VAT statuses would result in the seller being unable to recover input VAT, which is not favorable for businesses looking to maximize efficiency and minimize costs. Thus, the sale of new freehold commercial buildings under three years old is standard rated, confirming the choice of that answer in this context.