ACCA Advanced Taxation (ATX) Practice Exam

How long prior to registration can services be supplied for input tax recovery?

1. 1 month

2. 3 months

3. 5 months

4. 6 months

The correct answer is: 6 months

In the context of value-added tax (VAT), businesses can recover input tax on goods and services purchased prior to their VAT registration if certain conditions are met. The period for which these services can be supplied and still be eligible for input tax recovery is crucial for businesses planning their VAT accounting. The correct choice indicates that businesses can reclaim input tax on services provided up to six months before the registration date. This allows businesses to receive a tax benefit for expenses incurred in preparation for the production of taxable supplies. Such a policy encourages businesses to invest in their operations before officially registering for VAT, thereby supporting the broader economy. This six-month timeframe aligns with regulatory frameworks in various jurisdictions, ensuring that taxpayers are not penalized for incurring necessary business costs prior to formal tax obligations. Businesses must ensure that the services they are claiming input tax for were used for taxable supplies and that they hold valid VAT invoices for those services. Being aware of the specific timeframes is essential for proper VAT management and maximizing recoverable taxes, which influences financial planning and cash flow for businesses.