Running a business:
Partial exemption
You may not be able to reclaim all of you input VAT if you make both taxable and exempt supplies.
The input VAT on any items that relate to taxable supplies can be recovered in full.
The input VAT on any items that relate to exempt supplies cannot be recovered.
Where goods or services cannot be directly attributed to the taxable or exempt supplies, the input VAT is partially recoverable.
You can generally use the standard method to calculate how much of your input VAT is recoverable, although this method is overridden if it does not reflect the use made by the purchases. You may agree with HM Revenue & Customs that a different method is more appropriate.
The standard method calculates the recoverable percentage as
| Value of taxable supplies | ||
| Non-attributable input tax | × ----------------------------------- × | 100 |
| Value of total supplies |
The number should be rounded up to the nearest whole number, unless the business incurs residual input VAT of more than £400,000 per month on average, in which case (after 1 April 2005) the number should be rounded to two decimal places.
Where the exempt input VAT is within de minimis limits, all the input VAT can be reclaimed. The amount is de minimis if the input VAT is not more than £625 per month on average and also not more than 50% of the total input tax.
The de minimis limits are initially considered for each return period. At the end of the tax year (ending 31 March, 30 April or 31 May), an adjustment is made for the results of the year as a whole.
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Where next?
Within VAT ...
- What is VAT?
- Should I be registered for VAT?
- Should I register for a VAT accounting scheme?
- VAT records
- Tax point
- Why you need to pay your VAT on time
- Entertaining and travel expenses
- Bad debt relief and late payers
- Correcting errors
- Group and divisional registration
- Land and buildings
- When might I have to repay input VAT?
Within Running a business ...
- Accounting systems
- Financial information
- Your business premises
- Remuneration
- Business risks
- PAYE
- Business taxes
General…
