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Review Your SQE 1 Practice Records

Examination Timing: 00H02M48S

XYZ Ltd was incorporated five years ago. Its accounting period coincides with the financial year. During the first four years, the company was not required to register for VAT purposes as its taxable supplies were below the registration threshold. The company exceeded the threshold in the previous 12 months (fifth year of its operation) and now must register with HMRC for VAT purposes. The company had made purchases of goods and services which relate to the company's business during the last five years which attracted input tax in the following amounts: Financial Year 5: £7,000 goods / £3,000 of services in the first six months and £3,000 of services in the last six months Financial Year 4: £15,000 goods / £3,000 of services in the first six months and £3,000 of services in the last six months Financial Year 3: £10,000 goods / £3,000 services Financial Year 2: £12,000 goods / £2,000 services Financial Year 1: £6,000 goods (first year of operation) The company wishes to backdate its claim so it can get refunds of the input tax it has paid.


What is the maximum amount the company can claim?

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The company can claim back £47,000 of input tax paid for the purchase of goods. A trader can apply to backdate their VAT registration by up to four years for goods and six months for services. They will have to account for VAT on any VAT taxable supplies they have made after their chosen date, and they won't be able to reclaim any VAT on their purchases unless they have the right evidence and meet the other conditions for reclaiming VAT. This means the company can claim input tax paid for the purchase of goods for financial years 2, 3, 4, and 5. It cannot claim input tax for purchases made in the first year of operation, or for services delivered to the company in years 1-4. However, it can claim back the input tax paid for services in the last six months of financial year 5, although not for the tax paid in the first six months of that year. 


Key Point: A business can backdate its VAT registration to reclaim input tax for up to four years for goods and six months for services prior to the registration date, subject to having the appropriate evidence and meeting the conditions for reclaiming VAT.

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