ACCA Advanced Taxation (ATX) Practice Exam

How long before registration can services be purchased to reclaim input VAT?

1. Three months

2. Six months

3. One year

4. Two years

The correct answer is: Six months

The correct answer is six months because, under VAT regulations, businesses are allowed to reclaim input VAT on goods and services purchased in the period leading up to their VAT registration, specifically up to six months prior to the registration date. This provision helps new businesses manage their cash flow as they can recover VAT on expenses incurred while setting up their operations, which is critical for ensuring they do not incur excessive costs before they start collecting VAT themselves. This time frame is established to allow businesses to make necessary purchases to prepare for operations and to smooth the transition into formal VAT accounting. By capping this period at six months, the regulations strike a balance between facilitating new business growth and preventing abuse of the VAT reclaim process by businesses that might unduly delay registration to reclaim VAT on prior expenses. Other time frames listed, such as three months, one year, and two years, do not align with the established regulations regarding the reclaiming of input VAT before registration and would not provide the same support to businesses just starting out.