ACCA ATX ^UK Syllabus A6. Value Added Tax - VAT Registration - Compulsory and Voluntary - Past Papers ^{1 / 3}

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)

Pink Time Ltd
Heyer Ltd intends to incorporate a new subsidiary, Pink Time Ltd, on 1 September 2017. Pink Time Ltd will have a monthly turnover of £35,000. 
All of its sales will be to members of the public and will be zero rated for the purposes of value added tax (VAT).

Email from your manager – dated 8 June 2017
Please carry out the following work:

(c) Pink Time Ltd
Explain whether it will be compulsory for Pink Time Ltd to register for value added tax (VAT) and why the company would benefit from registering.

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

(c) Pink Time Ltd.                  (5 marks)

Cresco Ltd:
– Is a UK resident trading company.
– Commenced trading on 1 April 2012.
– Is registered for the purposes of value added tax (VAT).
– Has made significant trading losses in recent months such that the company will need to cease trading on 31 October 2016.

Cresco Ltd – trading losses:
– Recent and anticipated results are as follows:

– Cresco Ltd always claims relief for trading losses as early as possible.

Required:
(ii) Advise Cresco Ltd of the value added tax (VAT) implications of the cessation of its trade. (3 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)

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

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

Your manager has received a letter from Jodie in connection with her proposed emigration from the UK. Extracts from the letter and from an email from your manager are set out below.

Extract from an email from your manager 
Additional information
Jodie's business has always been registered for the purposes of value added tax (VAT). The sales proceeds in respect of the business assets are stated net of VAT.

Please prepare paragraphs for inclusion in a letter from me to Jodie addressing the following issues.

(d) Other matters
Explain the matters which Jodie should be aware of in relation to VAT in respect of the cessation of her business. I have already checked that Jodie charged the correct amount of VAT when she sold the business premises and the computer equipment.

Tax manager

(d) Other matters.                   (5 marks)

Kantar's business
Kantar's business provides delivery services. The majority of its customers are members of the public.

Kantar is not registered for the purposes of value added tax (VAT).

(d) Value added tax (VAT)
Explain, without performing any calculations, Kantar's obligation to compulsorily register for VAT; and state Kantar's ability, following registration, to recover the input tax incurred prior to registering

Required:

(d) Value added tax (VAT).              (4 marks)

Professional marks will be awarded for the clarity of the calculations, analysis of the situation, the effectiveness with which the information is communicated, and the quality of the overall presentation.     (4 marks)