ACCA ATX ^UK Syllabus A6. Value Added Tax - Circumstances for pre-registration VAT can be recovered - Past Papers ^{2 / 3}

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)

Your manager has received schedules of information from Ray and Shanira in connection with their personal tax affairs. These schedules and an extract from an email from your manager are set out below.

Extract from an email from your manager — dated 9 June 2016 
Please prepare a memorandum for the client files which addresses the following issues:

(a) Ray - unincorporated business
(ii) Ray is incurring input tax and is considering registering voluntarily for VAT. Set out the information we need in order to advise him on whether or not voluntary registration is possible and/or financially beneficial and explain why the information is needed. 
An explanation of whether or not Ray can recover the input tax in respect of the computer purchased on 3 June 2016 if he registers for VAT.

Tax manager

(a) Ray — unincorporated business. 
(ii) Value added tax (VAT).        (5 marks)