ICAEW AF · Chapter 4 · Question 5 of 8
A business that is NOT registered for VAT buys inventory for £1,200 plus VAT of £240. At what amount should the purchase be recorded?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) £1,440, because the VAT cannot be recovered and is part of the cost
Explanation
A business that is not VAT-registered cannot reclaim input VAT. The VAT is therefore a real cost and is included in the cost of the purchase: £1,200 + £240 = £1,440. Only registered businesses record a separate VAT account for recoverable input tax.
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