Value added Tax (VAT)

Standard rate 20%

Registration limit 85,000

Deregistration limit 83,000

Question 4 MELODY LTD Melody Ltd commenced trading on 1 November 2018 as a maker of musical instruments, and was required to apply value added tax (VAT) to its sales from 1 January 2020. The company's sales have been as follows: 2018 November 3,800 2019 June 7,600 December 5,100 July 8,500 2019 January 5,500 August 8,000 February 4,900 September 9,100 March 3,900 October 10,900 April 4,600 November 10,200 May 6,800 December 10,200 For the period 1 November 2018 to 31 December 2019 Melody Ltd had standard rated expenses of 500 per month (VAT inclusive amount). These were all in respect of services. The company's sales are all standard rated, and all of its customers are members of the general public. It was not possible to increase prices when the company registered for VAT. Required: (a) Explain why Melody Ltd was required to have been compulsorily registered for VAT from 1 January 2020. (6 marks) (b) State, giving reasons, the amount of input VAT that Melody Ltd will have recovered in respect of inputs incurred prior to registering for (4 marks) (c) Explain why it would not have been beneficial for Melody Ltd to have voluntarily registered for VAT from 1 November 2018. Your answer should be supported by appropriate calculations. (5marks) VAT