BPP Practice and Revision Kit FA 2020, question 29 (Rosa Sept / Dec 19)

Hi Tutor,

Referring to the question below, why is that the retail until to be regarded to be sold during the 8th year in the adjustment period? If Rosa bought the until on 1 May 2015 and sell it on 6 April 2022, shouldn’t it be sold during the 7th year in the adjustment period? Thanks.

Question

Disposal of the retail unit:
– Rosa will sell the retail unit, which is currently being rented to tenants up to 5 April 2022, for its market value of £280,000 on 6 April 2022.
– Rosa had bought the retail unit when it was newly constructed, on 1 May 2015, for £290,000 plus VAT at 20%.
– Rosa used the retail unit in her business until 30 April 2019, since when she has let it to unconnected tenants.
– The retail unit is subject to the capital goods scheme for VAT.
– Rosa has not opted to tax the retail unit for VAT purposes.

Answer in BPP

On 6 April 2022, when the retail unit is sold, it will be more than three years old. Accordingly, the sale will be exempt from VAT as Rosa has not opted to tax it.

On acquisition, the retail unit was newly constructed, so VAT of £58,000 (£290,000 x 20%) will have been charged. Rosa will have reclaimed the whole of this in the year ended 31 March 2016, as she used it in her business, making wholly standard rated supplies.

However, as the sale of the retail unit will be an exempt disposal, for the purpose of the capital goods scheme it is deemed to have 0% taxable use for the remainder of the ten-year adjustment period. As the warehouse is sold during the eighth year of the adjustment period, there are two years of the adjustment period remaining, and therefore a final VAT adjustment of £11,600 (£58,000 x 2/10 x (100% – 0%)) will be repayable by Rosa to HM Revenue and Customs (HMRC) in respect of the sale.