Sign up for our FREE monthly newsletter

Don't miss out on amazing content

Part of our vision is to share our expert insight and knowledge to help business owners achieve success. Sign up today!

Client PortalXERO LoginClient Services Brochure
Download our Client Services Brochure

VAT and Partial Exemption Updated

POSTED BY: Sally-Ann Lewis

01 September 21

A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. This means that the business is required to make an apportionment between the activities using a ‘partial exemption method’ in order to calculate how much input tax is recoverable.

There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could prove distortive. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC.

The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.

The tests are met where the total value of exempt input tax:

1. Is under £625 a month (£1,875 a quarter/£7,500 a year); and

2. Is less than half of the total input tax incurred.

If both tests are met the VAT can be recovered. Businesses that are partially exempt, need to complete this calculation on a quarterly basis as well as an annual calculation.

HMRC has issued an updated version of VAT Notice 706 entitled ‘Partial exemption’. The notice now includes additional details of how to apply for partial exemption online.

THE LATEST NEWS & BLOG POSTS FROM TEAM CB

Hotel and holiday accommodation VAT

Is your business ready for the changes?

What goods are eligible for the VAT margin scheme?

Accounting for VAT on your profit margins could benefit your business

How to value a property for ATED

Annual Tax on Enveloped Dwellings (ATED) could be payable on your company’s property assets.