ExpertMedium2 marksMultiple Choice
ACCA · Question 15 · Value added tax (VAT)
Section A
'Oak & Iron', a bespoke furniture maker, issued a standard-rated invoice for £2,400 (inclusive of VAT) on 10 May 2023. The payment was due on 9 June 2023. The customer went into liquidation and never paid.
What is the earliest date 'Oak & Iron' can claim VAT bad debt relief, and how much can they claim?
Section A
'Oak & Iron', a bespoke furniture maker, issued a standard-rated invoice for £2,400 (inclusive of VAT) on 10 May 2023. The payment was due on 9 June 2023. The customer went into liquidation and never paid.
What is the earliest date 'Oak & Iron' can claim VAT bad debt relief, and how much can they claim?
Answer options:
A.
10 November 2023; £480
B.
9 December 2023; £400
C.
9 December 2023; £480
D.
10 November 2023; £400
How to approach this question
Determine the date 6 months from the payment due date. Then extract the VAT element from the gross invoice amount using the VAT fraction (1/6).
Full Answer
B.9 December 2023; £400✓ Correct
VAT bad debt relief can be claimed 6 months after the payment due date (or the date of supply if later). Due date was 9 June 2023, so the earliest date is 9 December 2023. The invoice is £2,400 inclusive of VAT. The VAT element is £2,400 x 1/6 = £400.
Common mistakes
Calculating 6 months from the invoice date instead of the due date, or multiplying the gross amount by 20% instead of using the 1/6 fraction.
Practice the full ACCA TX — Taxation Practice Exam 3
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