I have been trying to work out the de minimis rules for VAT.

I have read the HMRC notice and I think I understand what it means.

I have purchases of about £30,000 per year, but these are mostly except inputs, only about 30% have VAT charged.

I also have expenses such as utility bills, advertising, of about £15000 per year.

Therefore exempt purchases are worth £21000 per year. Input Tax at 20% would be £3500, which is about £290 per month. This is less than £625 per month. The second condition is that total exempt inputs (costs) are less than half of total costs. £21000/£45000 is about 47%.

Does this mean that I can claim input tax on all inputs of £45000/6 in my VAT return.

Secondly the 30% ratio is a rough estimate, what proof would I need to give hmrc that it is correct, and would they actually challenge it since the 47% is awfully close to half

Thanks in advance

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Are you partly exempt?

What about your outputs? If your outputs are solely taxable, not exempt, then you don't need to adjust your input tax.

It is irrelevant what proportion of your inputs are exempt.

Hope that makes things easier.

You need to look at....

Which of my sales are standard rated or zero rated and which of my sales are exempt.

Then look at your purchases and allocate the purchases into three categories;

a) Purchases relating to standard rated or zero rated sales

b) Purchases relating to exempt sales

c) Purchases which relate to both of the above

Then you count the VAT on category b) above and add it to a percentage of category c) (say you had net standard and zero rated sales of £15,000 in the quarter and £15,000 of exempt sales you would add 50% of category c) to category b)), and if this amount of VAT is BOTH less than £1875 AND less than half of the total VAT that would be in box 4 if you did not carry out a partial exemption calculation then you can have the lot in box 4. Keep the workings on your file though. If both of these things do not apply things get even worse and more complicated.

Regards

MtF

OK that makes sense, I guess I did misunderstand the whole thing.

I guess I shouldnt go around messing with things I dont understand.

Thanks.

I wouldn't say that....

First you read the guidance always a good place to start, then you thought about it and asked people who have experience for an opinion on whether your conclusions were right. I for one think that puts you ahead of 90% of people.

Regards

MtF

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