ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is a disadvantage of voluntary VAT registration?

1. Reduction in administration costs

2. Output VAT charged on sales

3. Increased competitiveness in the market

4. Enhanced customer satisfaction

The correct answer is: Output VAT charged on sales

Voluntary VAT registration can indeed lead to the imposition of output VAT on sales, which is seen as a disadvantage for businesses. When a business chooses to register for VAT voluntarily, it is required to charge VAT on its taxable goods and services, which can raise the overall price for customers. This may lead to a potential loss of sales, especially if competitors are not VAT registered and can offer lower prices. Additionally, businesses may find that their customers, particularly unregistered businesses or consumers who cannot reclaim VAT, are less willing to purchase from a VAT-registered entity due to the additional costs. The resulting situation can affect a company's competitive standing in the market, particularly in price-sensitive sectors. The other options highlight potential advantages that can come with voluntary VAT registration: reduction in administration costs and increased customer satisfaction would not typically be associated with the imposition of output VAT, as they relate more to the benefits gained from input VAT reclaiming or improved service delivery.