Does a garage which supplies MOTs, which are outside the scope of vat, have to apply partial exemption rules to input tax on expenditure which relates to taxable and outside the scope of vat supplies ie MOTs?
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What direct input tax do you have re MOTs, what expenditure is expressly re MOTs?
Certainly no materials/consumables, the only input is really labour except maybe the software to issue the certs and any equipment, like exhaust gas analysis, which is used solely in the MOT process (and I would argue it has /could have dual use as it is also a diagnostic tool re servicing)
You do a partial exemption calculation if exempt is over the de minimis.
https://www.gov.uk/guidance/partial-exemption-vat-notice-706
But MOT fees are not exempt, they are outside the scope. The de minimis limit does not apply to input VAT attributable to such supplies. But as noted below there is no need to apportion overhead costs.
Of course they are-apologies, I am getting old (It is over 20 years since I dealt with any motor trade clients)
HMRC have always taken the view that although the income for MOT's (where done at cost/ standard charge) is Outside the Scope of VAT the expenditure isn't non-business.
So as it's neither exempt nor non-business there's no apportionment needed, as these (apart from things in special orders like white goods/cars) are the only ways you need to apportion expenses.
See:
https://www.gov.uk/hmrc-internal-manuals/vat-partial-exemption-guidance/...
That's very interesting, and of course contrary to the usual premise that any 'input' VAT directly incurred in respect of outside the scope supplies should be blocked.
Yes I've always viewed it as a 'fudge' where HMRC have just picked and chosen what to apply because everyone would view restricting garages from recovering on essential road safety measures as a reason for uproar, but they couldn't be bothered to legislate or find a solution that fitted in with existing practice!
They've always tended to justify by accepting that none of the expenditure is directly attributable to the MOT costs but that it all has a duality of purpose as the MOT side is there to generate repairs sales etc.
What is the formulae to calculate partial exemption
I too have a client who runs a garage and does mot's
However he only uses 2 pieces of equipment that directly used for mot's
So how do you work out partial exemption