Make-it Ltd was set up in March 2014 and is a value added tax (VAT) general taxpayer.
Details of Make-It Ltd’s purchases from its inception but before the commencement of production are:
In August 2014, Make-It Ltd commenced production of two finished products in the same workshop with the same equipment and materials: Taso, which is subject to VAT, and Exo, which is VAT exempt. Details of Make-It Ltd’s transactions for the months of August to December 2014 are:
State, giving reasons, if Make-it Ltd can claim a value added tax (VAT) input credit on the three items purchased prior to the commencement of production.
A VAT input credit will be allowed in respect of the purchase of equipment because equipment comes within the definition of a fixed asset.
No input credit will be allowed in the case of the purchase of concrete and building materials or the cost of the construction of the factory premises because it is an immovable property and the construction company paid business tax.
Explain the meaning of ‘abnormal loss’ for VAT purposes and state whether each of the materials losses (items (3), (4) and (5) above) will be an abnormal loss or not an abnormal loss.
An abnormal loss is a loss due to theft, spoilage or deterioration or resulting from poor or improper management.
Items (3) and (4) are not abnormal losses.
Item (5) is an abnormal loss.
Calculate the total input VAT which can be credited to Make-it Ltd in 2014.
Total input VAT creditable for 2014
