ACCA Advanced Taxation (ATX) Practice Exam

When considering voluntary VAT registration, what factor should a new business assess regarding suppliers?

1. The suppliers' ability to deliver goods on time

2. The VAT registration status of suppliers

3. The pricing strategies of suppliers

4. The geographical location of suppliers

The correct answer is: The VAT registration status of suppliers

When a new business considers voluntary VAT registration, understanding the VAT registration status of suppliers is crucial. This is because a registered VAT supplier will charge VAT on their sales, which the business can reclaim if it is also VAT registered. This means the business needs to assess whether its suppliers are VAT registered; if they are not, the business cannot reclaim VAT on those purchases, which could affect cash flow and pricing strategies. Additionally, being aware of suppliers' VAT status can help the business forecast its own VAT liability more accurately, as its output tax will be determined by its sales activities with potentially VAT-registered customers. This awareness is essential for managing compliance and ensuring that the business can take full advantage of the VAT system. While factors such as delivery timelines, pricing strategies, and geographical location of suppliers are certainly important considerations for operational efficiency and cost management, they do not directly impact the VAT reclaim process like the registration status does. Thus, assessing the VAT registration status of suppliers would be the most relevant factor in the context of voluntary VAT registration.