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L Ltd. is registered for VAT. On 1 January 2017 L Ltd. purchased a motor car costing £18,400 (inclusive of VAT) for the use of its managing director for business and private purposes. The private use is estimated to be 40%. The managing director is provided with free petrol for business and private mileage which cost L Ltd. £625 (exclusive of VAT). L Ltd. wishes to use the fuel scale charge: the relevant quarterly VAT inclusive scale charge is £361.
What is L Ltd’s VAT repayment in respect of the motor car and the fuel for the quarter ended 31 march 2017?
Answer is £65.
Sir, I understood that since the motor car is both for private and business purpose the whole cost is disallowed. However, in arriving at the figure of £65 they use 361×1/6 which Along with 625×20% which I understood. So many only doubt is why did they use 361×1/6.
P.s Ive watched all of your lectures but I got confused here, probably might have forgot something.
Thanks for all your support.
Look at OT notes p.153 section 4 motor expenses
Input tax is recovered in full = 625 x 20% = 125 and output tax must be accounted for on the VAT INCLUSIVE scale charge = 361 x 20/120 (ie 1/6) = 60Therefore net input tax recoverable = 125 – 60 = 65
That is a very worrying question and I can only assume you have not yet studied anything on VAT as this is dealt with in the very first section (1.1 (a)) of the VAT chapter in the OT notes!
Output tax is charged by a business on its sales and input tax is suffered by a business on its purchases and expenses – read the notes and watch the lectures is my best advice for you
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