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VAT - Partial Exemption - Purchase of equipment

VAT - Partial Exemption - Purchase of equipment

Please could I have some advice /second opinion.   A partially exempt client has purchased some equipment.  The value of the purchase is below the capital goods scheme thresholds.      Do I  allocate the VAT to the normal taxable, exempt and residual categories  depending on how the equipment is used.   i.e if it is used only for generating taxable sales can all of the input VAT be claimed, whereas if it was only used in relation to exempt sales no input VAT would be recovable.    Or is there another treatment?  

 if the equipment is subsequently sold, how is the sale treated in terms of what VAT has to be paid to HMRC.      

I have tried reading the VAT notices, but have managed to get myself somewhat confused.   Any help is much appreciated.



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By Ruddles
09th Nov 2017 13:58

Subject to the resident VAT expert(s) putting me straight, my understanding is that you treat the input VAT based on intended use of the asset at the time of acquisition.

Should any of the input VAT be recoverable, output VAT is chargeable on the full amount of the sale proceeds.

Thanks (1)
09th Nov 2017 16:35

@ OP (JannerD).

I endorse the advices of Ruddles (post at 13.58) notwithstanding my falling well short of the "expert" status to which she refers.

I also agree your comment re the GOV.UK guidance (which is not especially well written).

The INTENTION, on acquisition, is the critical factor, in relation to the VAT Return in which the Input Tax claim is made.

Whilst you make no reference to the possibility (no criticism intended thereby) that the intention(s) may later CHANGE, there are provisions in the legislation, to reflect that/those later change(s) of intention, with a resultant increase or decrease in the Input Tax claimed overall on the asset.

As Ruddles also states, Output Tax is chargeable on the full ultimate sale proceeds, in the normal way [there are no provisions for restricting the Output Tax, nor logically should there be - the customer who buys the asset from your client may or may not be subject to the Partial Exemption rules (depending of course on that customer's own circumstances)].

The legislation (VAT Regulations 1995) is here:-

Regulations 99 onwards are in point.


Thanks (1)
By Ruddles
to fawltybasil2575
09th Nov 2017 16:55

Worth pointing out that the change of intention rules apply only where the change of intention occurs before the original intention is fulfilled.

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to Ruddles
09th Nov 2017 17:14

Worth mentioning too the annual adjustment to the PE calculation!

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By jannerD
10th Nov 2017 13:46

Thank you for all the helpful comments, it's much appreciated.

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