ACCA Advanced Taxation (ATX) Practice Exam

What is the VAT treatment for imports of goods using postponed accounting?

1. Import VAT is paid upfront and non-reclaimable

2. Import VAT is declared as output and reclaimable as input VAT

3. Import VAT is ignored in accounting

4. Import VAT is charged at a lower rate

The correct answer is: Import VAT is declared as output and reclaimable as input VAT

When discussing the VAT treatment for imports of goods using postponed accounting, the correct choice highlights a key benefit of this accounting method. Under postponed accounting, import VAT is not paid upfront but is instead declared as output VAT on the VAT return of the importer. This allows businesses to reclaim the same amount of VAT as input VAT in the same VAT period, leading to a cash flow advantage. Therefore, businesses can effectively offset the VAT liability against their VAT credits, which enhances their liquidity, as they do not have to lay out cash at the point of importation. This method of accounting is particularly advantageous for businesses involved in international trade, as it simplifies the cash flow related to imports and assists in managing VAT more effectively. In the context of the choices provided, this understanding clarifies why the second option is correct to reflect the treatment of VAT under postponed accounting.