ACCA Advanced Taxation (ATX) Practice Exam

What administrative challenge can arise from VAT group registration?

1. Increased tax audits from HMRC

2. Difficulty in obtaining and collating information for returns

3. Higher compliance costs

4. Reduced ability to claim input VAT

The correct answer is: Difficulty in obtaining and collating information for returns

The correct response highlights the administrative challenge posed by VAT group registration in terms of obtaining and collating information for returns. When businesses enroll in a VAT group, they are required to prepare a single VAT return for the entire group rather than separate returns for each individual entity. This consolidation can complicate data collection and reporting, as it necessitates a cohesive effort to gather all relevant financial information from each group member. The complexity increases because each entity within the group may have different accounting systems, definitions of taxable and exempt supplies, and varying patterns of transactions. The administration must harmonize these different data sets to produce an accurate collective return. This often requires more coordination, management oversight, and can lead to potential discrepancies if information is not consistently communicated or reported. In addition, any errors in the return can have tax implications for the entire group, leading to increased scrutiny from HMRC. As such, while other options present valid points related to VAT registration challenges, the significant administrative burden associated with information collation tailored for a VAT group registration context specifically underlines why this is the correct answer.