Overview
The term “self supply” in accounting refers to a specific provision in the VAT (Value Added Tax) system. This concept is particularly applicable in scenarios where a business is involved in constructing or improving a commercial building that will be used for exempt purposes. When the property is used for an activity that does not allow for VAT recovery, the VAT regulations can require the business to account for VAT as if it had bought the building. This includes accounting for output tax on the land and building costs, while input tax is allowed only on the building costs. The self-supply must be assessed and paid within three months of the initial occupation of the building.
Examples
Example 1: Office Building for Charitable Use
A charity constructing a new office building plans to use it exclusively for providing charitable services, which are VAT-exempt. On completion, the charity must account for self-supply VAT. This means they must charge VAT (output tax) on the market value of the building and its associated land. However, they can reclaim VAT (input tax) on the building costs only. The VAT payment must be settled within three months after the charity begins using the building.
Example 2: Hospital Expansion
A privately-owned hospital, which provides VAT-exempt medical services, expands its facilities. The hospital will need to assess and pay self-supply VAT. It must calculate VAT on the value of the new extension (output tax) while reclaiming VAT on the construction costs (input tax). This self-supply charge has to be assessed and paid within three months of the opening of the new extension to patients.
Frequently Asked Questions (FAQs)
What is the purpose of the self-supply rule?
The self-supply rule ensures that businesses do not gain a tax advantage by using a building for VAT-exempt purposes without accounting for VAT.
How is output tax calculated in a self-supply scenario?
Output tax is calculated based on the value of the interest in the building and the associated land.
Can all VAT on building costs be reclaimed in a self-supply situation?
No, input tax is allowed only on the building costs related to the supply; it does not include the VAT on land.
What happens if the self-supply VAT is not paid within three months of occupation?
Not paying the self-supply VAT within the stipulated timeframe may result in penalties and interest charges.
Who is responsible for verifying the accuracy of the self-supply VAT calculation?
The business creating the self-supply assessment is responsible, but tax authorities may audit it for compliance.
Value Added Tax (VAT)
A consumption tax placed on a product whenever value is added at each stage of the supply chain.
Output Tax
VAT collected by a business on its sales of goods and services.
VAT paid by a business on its purchases of goods and services.
Exempt Purpose
Related to activities or supplies that are not subject to VAT, such as some charitable activities.
Online Resources
Suggested Books for Further Studies
- “Understanding Value-Added Tax: A Constant Evolution” by Alan Schenk and Oliver Oldman
- “Value-Added Tax: International Practice and Problems” by E. L. B. Glaister
Accounting Basics: “Self Supply” Fundamentals Quiz
### What does the term 'self-supply' in VAT mean?
- [x] A business must charge VAT on goods or services it uses internally for exempt purposes.
- [ ] A business does not need to charge VAT on internally used goods or services.
- [ ] VAT is charged only on goods sold externally.
- [ ] It's a VAT exemption scheme for businesses.
> **Explanation:** Self-supply refers to the scenario where a business must charge VAT on goods or services it uses internally if those uses are for exempt purposes, ensuring no tax advantage is gained.
### What kind of tax is 'output tax'?
- [x] Tax collected by a business on its sales.
- [ ] Tax paid by a business on its purchases.
- [ ] Income tax return for a business.
- [ ] Sales tax in international transactions.
> **Explanation:** Output tax is the VAT collected by a business on the goods and services it sells.
### Input tax in VAT refers to which of the following?
- [ ] Tax collected by the business on sales.
- [x] Tax paid by a business on its purchases.
- [ ] Tax charged internally for exempt activities.
- [ ] Any non-recoverable tax.
> **Explanation:** Input tax refers to the VAT a business pays on purchases of goods and services.
### When must self-supply VAT be assessed and paid after initial occupation of a building?
- [ ] Within one month
- [ ] Within six months
- [ ] Within a year
- [x] Within three months
> **Explanation:** The self-supply VAT must be assessed and paid within three months of the initial occupation of the building.
### In the context of self-supply VAT, which costs are reclaimable as input tax?
- [x] Building costs only
- [ ] Land and building costs
- [ ] Land costs only
- [ ] Overheads and utilities
> **Explanation:** Input tax related to self-supply only covers building costs, not the associated land costs.
### Self-supply VAT is necessary for businesses using properties for what type of activities?
- [x] Exempt purposes
- [ ] Taxable purposes
- [ ] All professional purposes
- [ ] Personal purposes
> **Explanation:** Self-supply VAT is particularly for properties used for activities that are VAT-exempt.
### Who regulates and audits the self-supply VAT compliance?
- [ ] Local municipal councils
- [ ] Private auditors
- [x] Tax authorities
- [ ] Business owners themselves
> **Explanation:** Tax authorities regulate and audit VAT compliance, including self-supply.
### Which document is useful for understanding international value-added tax practices?
- [ ] Business Tax Manual
- [x] "Understanding Value-Added Tax: A Constant Evolution" by Alan Schenk and Oliver Oldman
- [ ] General Financial Statements
- [ ] Corporate Law Essentials
> **Explanation:** The book "Understanding Value-Added Tax: A Constant Evolution" by Alan Schenk and Oliver Oldman provides insight into international VAT practices.
### Output tax on self-supply relates to which elements?
- [ ] Land costs only
- [x] Land and building costs
- [ ] Building costs only
- [ ] Operational costs
> **Explanation:** Output tax in the self-supply context relates to both land and building costs.
### What must businesses ensure when dealing with self-supply VAT?
- [ ] They must avoid all tax payments.
- [x] Accuracy in VAT calculation and timely payments.
- [ ] Maintain separate accounts for self-supply transactions.
- [ ] They must include personal usage in calculations.
> **Explanation:** Businesses must ensure accurate VAT calculations and timely payment within the specified period to comply with self-supply VAT regulations.
Thank you for delving into the specifics of self-supply within VAT. Your understanding of these regulations is crucial for compliance and financial management in your business activities.
