ACCA Advanced Taxation (ATX) Practice Exam

What VAT implications arise when selling services to non-business customers?

1. No VAT is charged

2. Output VAT charged at 10%

3. Output VAT charged at 20%

4. VAT is charged at the discretion of the supplier

The correct answer is: Output VAT charged at 20%

When selling services to non-business customers, the standard VAT treatment typically applies, which means that output VAT would be charged at the prevailing rate, which is commonly 20% in many jurisdictions, particularly in the UK. This makes the correct answer accurate because businesses that are VAT registered must charge VAT on taxable supplies made to their customers, including services provided to individuals or non-business entities. The VAT charged is a way for the government to collect tax on goods and services sold within the economy, and it is the responsibility of the supplier to include this tax in their pricing. In this context, other answers suggest either an incorrect level of VAT or the absence of VAT entirely. Charging no VAT would contradict the obligations of VAT-registered businesses when dealing with final consumers, while output VAT charged at 10% is not standard for most services. Additionally, stating that VAT is charged at the discretion of the supplier could lead to non-compliance with tax regulations, as VAT must be uniformly applied according to established laws, without personal discretion.