Question 3 (14 marks)

VAT

Frank owns a retail clothing shop. He is registered for VAT and has requested your assistance in preparing his VAT return for the quarter ended 31 March 2022. The following information is available, and all figures exclude VAT unless stated otherwise.

Cash sales for the quarter were 50,000, of which 26,000 were standard rated and 24,000 zero rated.

Credit sales of 60,000 were all standard rated. Frank offered a 5% discount for payment within 30 days and 80% of customers accepted this offer paying within 30 days and within the quarter. The sales figure is before the discount was applied.

Frank wrote off two bad debts during the quarter. One was for an 80 sale made on 1 June 2021 and the other a sale of 200 made on 1 January 2022.

Purchases of 28,000 were made during the quarter. All were standard rated.

A new boiler was installed in the shop on 5 January 2022. The boiler cost 1,800 including VAT and the installation cost was 240 including VAT. The heating engineer who installed the boiler is VAT registered.

On 1 March 2022 Frank purchased heating oil for the business at a cost of 420 excluding VAT.

Required:

1. Calculate the VAT payable by Frank for the quarter ended 31 March 2022, showing the total output and input VAT and the net amount of VAT payable to HMRC. Explain your treatment of the bad debts. [12 marks]

2. State the due date for payment to HMRC? [2 marks]

Total: 14 marks

Question 4 (10 marks)

You are a tax advisor working in an accounting practise.

You have recently come across an internet business selling celebration cakes. On further investigation you discover that the owner of this business is one of your clients, Sally Baker. You have submitted her tax return for 2021/22, signed by Sally, but she made no mention of having any trading income.

Required:

Write notes in preparation for your meeting with Sally, discussing the ethical and professional issues raised and showing how you would advise her.

Total: 10 marks