ACCA Advanced Taxation (ATX) Practice Exam

What is one main disadvantage of VAT group registration?

1. Members are jointly and severally liable for VAT

2. Group members can only file VAT separately

3. VAT groups are not recognized internationally

4. Members cannot claim VAT refunds

The correct answer is: Members are jointly and severally liable for VAT

The primary disadvantage of VAT group registration is that members are jointly and severally liable for VAT. This means that if one member of the group fails to pay the VAT owed, the tax authorities can pursue any of the other members for the full amount of the debt. This shared liability can create significant risk for members, as it makes them financially accountable for the actions of their group members. Therefore, a business considering joining a VAT group must weigh this potential risk against the benefits of group registration, which can include administrative efficiencies and potentially improved cash flow through the offsetting of VAT owed and reclaimable. The other options do not accurately reflect the nature of VAT group registration. Members of the group can file VAT returns collectively rather than separately, which is an advantage rather than a disadvantage. Furthermore, VAT groups are recognized within the EU framework, though this may vary in non-EU contexts; thus, the international recognition of VAT groups isn't a primary concern. Lastly, while members can typically claim VAT refunds, the mechanism for doing so might differ from standard VAT filing, but it does not imply that they cannot claim refunds at all.