Your manager has had a meeting with Wanda, a client of your firm. Extracts from the memorandum prepared by your manager following the meeting, together with an email detailing the work he requires you to do, are set out below.

Extracts from the memorandum prepared by your manager – dated 3 December 2018

Wanda’s new business – KS
Wanda intends to begin trading on 1 April 2019. The business will be operated either:
– by Wanda and Roth in partnership; or
– by a limited company owned 70% by Wanda and 30% by Roth.
The turnover of the business for the year ending 31 March 2020 is expected to be £48,000.

Budgeted profitability of KS
In its first year of trading the business will make either a small profit or, possibly, a loss (of no more than £20,000).

However, once the business is fully operational, it is budgeted to make a tax adjusted trading profit of £100,000 per year. This figure is before deducting any salaries paid to Wanda and Roth.

Email from your manager – dated 4 December 2018

Please prepare the following notes and calculations for use in a meeting with Wanda.

(b) Voluntary registration for value added tax (VAT)
The sale of children’s clothes is a zero rated supply for the purposes of VAT. With this is mind, explain:
– why the business would be permitted to register for VAT from 1 April 2019; and
– the advantages and disadvantages of doing so.

Tax manager

Required:
Prepare the notes for use in a meeting with Wanda as requested in the email from your manager. The following marks are available:

(b) Voluntary registration for value added tax (VAT). (4 marks)