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Question 2c

Your manager has received a letter from Christina. Christina is the managing director of Sprint Ltd and owns the whole of that company's ordinary share capital. Sprint Ltd is a client of your firm. Extracts from the letter from Christina and an email from your manager are set out below.

Extract from the letter from Christina
I intend to purchase the whole of the ordinary share capital of Iron Ltd on 1 November 2015. My company, Sprint Ltd, purchases components from Iron Ltd, so the two companies will fit together well.I hope to increase the value of Iron Ltd over the next three to five years and then to sell it at a profit.

I need your advice on the following matters:

Value added tax (VAT)
Iron Ltd is not registered for the purposes of VAT. The current management of the company has told me that the level of bad debts is keeping the company's cash receipts in a 12-month period below the registration limit of £81,000. However, I suspect that when I have the opportunity to look at the figures in more detail, it will become apparent that the company should be registered.

Extract from the email from your manager

Please carry out the work set out below.

There will be quite a few points to draw to Christina's attention, so keep each one fairly brief.

(c) VAT registration
Set out the matters which Christina should be aware of in relation to the need for Iron Ltd to register for VAT and the implications for that company of registering late.

Tax manager

Required: Carry out the work required as requested in the email from your manager. The following marks are available:

(c) Value added tax (VAT) registration.               (3 marks)