Never do a favour...

Never do a favour...

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A friend has convinced me what a good idea it would be to review his partial exemption calculation, however having not looked at one for many years it appears I'm probably not the best man for the job......

Any comments on the calculation below would be appreciated: -

Taxable outputs in the quarter are broadly 60% of total outputs.

Input tax not attributed to taxable supplies are more than £625 per month in the quarter so we've failed the test.

What happens to the residual input tax, does he claim 60% in the quarter (which then seems to get adjusted later in the annual adjustment) or is his claim purely for the attributable input tax?

Many thanks

Replies (2)

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By The VAT Doctor
15th Jan 2013 11:59

Re: Never do a favour

You are a good friend!

Are you saying that the input tax not attributed to taxable supplies is over £625 per month AFTER you have applied the 40% (exempt supplies) to it, or before?  If before, then the actual exempt input VAT may be below the threshold.  As an example, if the residual VAT was £750 with 40% exempt outputs, then the exempt element of the residual VAT is £750 x 40% or £300. So, provided wholly attributable (to exempt) VAT is less than £325, then the deminimis threshold would be met.

Additionally, VAT that wholly relates to exempt VAT is added to the calculated VAT in overheads that relates to exempt supplies to arrive at the total exempt input tax, which of course must be below £625 per month on average AND less than 50% of total input VAT.

You are correct that, if the deminimis test is not met, the only VAT you can claim is the 60% of the residual VAT plus all of the VAT that wholly relates to taxable supplies.  all to be adjusted on the annual adjustment.

I hope this helps.

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By Kingsgrove
15th Jan 2013 12:30

Foolish rather than a good friend!

Thanks! It is after the adjustment for exempt supplies, but at least he gets some input tax relief on the residual inputs.

 

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