Dent Ltd requires advice on registering for value added tax (VAT), the corporation tax treatment of its expenditure on research and development (R&D) activities, and the after-tax cost of remuneration to be provided to a key employee.

Dent Ltd:
– Will be incorporated and start trading on 1 July 2019.
– Will undertake a research project to develop an innovative new process related to its trade.
– Will be a small enterprise for the purposes of R&D expenditure.
– Will prepare its first set of accounts to 30 June 2020.
– Will make wholly taxable supplies for VAT purposes.

Dent Ltd – budgeted income for the year ending 30 June 2020:
– The value of trading receipts in the first few months will be low, such that Dent Ltd will not be required to be compulsorily registered for VAT until 1 April 2020.
– Dent Ltd expects, however, to receive substantial fees in April to June 2020, such that it anticipates generating an overall taxable trading profit for the year ending 30 June 2020.
– All of Dent Ltd’s customers will be registered for VAT.

Dent Ltd – budgeted R&D expenditure for the year ending 30 June 2020:

– The above figures are all exclusive of VAT, where applicable.
– The property costs entirely comprise heat, light and water expenses.
– The staff costs include a fee of £25,000 to an agency (which is VAT registered) for the provision of an unconnected external contractor’s services for the year.
– The remainder of the staff costs wholly relate to amounts payable to, or on behalf of, Dent Ltd’s employees, including pension contributions totalling £14,000.
– The property costs, consumables and agency fees are incurred evenly throughout the year.

Required:
(a) Advise Dent Ltd on the implications for the recovery of input value added tax (VAT) of registering for VAT with effect from 1 April 2020, when it will be compulsory to do so, and explain why it is beneficial for the company instead to register voluntarily with effect from 1 July 2019.

Note: Calculations are NOT required for this part (a). (6 marks)