Standard method

Under the standard method, this percentage is calculated as the value of taxable supplies over total supplies (SI 1995/2518 reg 101).

Rounding

The recovery percentages calculated under the standard method must be rounded up to the next whole number unless you incur more than £400,000 of residual input tax each month on average in which case you must round to 2 decimal places. Note that rounding up does not apply in certain circumstances for ‘foreign’ and ‘specified’ supplies.

The de minimis rule

Where exempt input tax is deemed as insignificant, all input tax suffered is deemed to be attributable to taxable supplies and so is fully recoverable. For this treatment to apply, the total value of exempt input tax must not:

  • £625 per month on average, and

  • 50% of total input tax in the relevant period

Total value of exempt input tax is input tax directly attributable to exempt supplies plus the proportion of residual input tax that is attributable to exempt supplies.

A simplified test was introduced from 1 April 2010 to save certain businesses the need to carry out a full partial exemption calculation each quarter to confirm that they are de minimis. For this treatment to apply, the following conditions must be met:

  • Total exempt input tax is not more than £625 per month on average, and

  • Total exempt input tax is not more than 50% of total input tax

Where in a VAT period a business passes the simplified test, it can treat itself as de minimis and provisionally recover input tax relating to exempt supplies. Businesses must still review its de minimis status at the year-end as before and account for any over or under recovery of input tax as part of its annual adjustment. Note that for group registrations, the above limit applies to the group as a whole.

 

 

 

 

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