Partial Exemption De Minimis Rules
A partial exemption method must lead to a result that allows you to recover part of the input VAT that adequately reflects the extent to which the purchases for which it was made are used for taxable supplies (and other supplies giving rise to the right to deduct). It should be easy for you to use and for HMRC to check. Such a method is called “fair and reasonable.” This allows up to £7,500 of input VAT to be recovered each year from a partially exempt business in relation to exempt supplies that would otherwise be non-refundable. Under the old rules (applicable to VAT incurred before 1 January 2011), the VAT initially provided for non-commercial activities would not have been adjusted, so that the company would only have been entitled to a depreciation adjustment of GBP 1 000. The use of a particular method is appropriate if the standard method does not allow for a “fair and reasonable” refund of input VAT and if the alternative guarantees a more accurate result. By “more accurate” we mean that the particular method more accurately reflects the use of cost. Before submitting your application, read PE41000 of the Partial Exemption Manual and PE42000. The de minimis limit has no interaction with PE methods; either in the calculations or in the choice of the method to be used. The method to be applied must be agreed solely on the basis of whether it leads to a fair and proportionate answer, regardless of whether the transaction is then minor.
Each time you prepare the figures for your VAT return, you will need to check whether your input exempt VAT exceeds the de minimis limit, unless you use the “annual test” (see section 11.11). You can apply the old rules and calculate separate recovery percentages for each of your VAT returns if you prefer. An annual adjustment is a calculation made at the end of a longer period, usually your partial taxation year. This takes into account any difference in the percentage of refundable input VAT that may arise between tax periods of the same longer period. This is explained in Section 12. Holding companies may levy input VAT on costs for business purposes that are not directly related to taxable or exempt supplies (e.g. VAT on the acquisition cost of a business for which they intend to provide taxable administrative services). These costs, which concern the whole of economic activity, must be shared according to the partial exemption method in force. A holding company may also have input VAT directly linked to supplies (e.g. the sale of shares in subsidiaries or the sale of real estate). In those circumstances, the refund of input VAT depends on the imputability of the supplies made and whether they were made for commercial purposes. If the de minimis threshold has not been exceeded in the annual calculation, all input tax paid during the year, including input tax attributable to exempt supplies, may be recovered.
Thus, if, during one of the monthly or quarterly periods, the de minimis threshold has been exceeded and the refund of input VAT has been limited, that input VAT becomes recoverable through the annual adjustment. The annual adjustment must be made by the VAT return either for the final return of the year or for the first return of the following year. Adjustments made under the CGS are not taken into account in deciding whether it is a business. Since 1 January 2011, HMRC can now approve a method for calculating business or non-agricultural business. If you also need to perform partial exemption calculations, HMRC may also allow the use of a single agreement covering the company`s or non-commercial activities and partial exemption calculations. This is called a combined method. If you are a VAT taxable person, you are required by law to keep the records and accounts specified in the VAT Guide (VAT Note 700). For the partial exemption, your records must also allow you to calculate the amount of input VAT you can claim for each tax period and tax year (paragraph 12.2). You must also keep any other records you use to calculate your recoverable input tax.
Appendix 2 provides additional details on how to apply for a partial exemption online. Is your proposal a partial combined agricultural or non-agricultural exemption calculation? Section 13.16 describes how the recovery and refund rules were extended to changes in actual or planned non-commercial or private use as of 1 January 2011. For this purpose, non-commercial commercial use is considered tax-exempt commercial use. The statements made by companies during the negotiation process on a PE method, according to which they consider themselves a de minimis organisation and that only a method that achieves this can be acceptable, have no meaning and no status. Similarly, public servants should not resist approval of a fair and reasonable method that results in a de minimis result simply because they did not expect it. If the capping rules apply to you, you must perform your partial exemption calculations in the usual way as if you were recovering or refunding input tax. You must indicate where the cap period is and the VAT related to a tax period of more than 4 years will not be adjusted. VAT for tax periods of less than 4 years must be recovered or refunded if necessary. The issue of new shares does not constitute a supply for VAT purposes. If the expenditure is incurred for the purposes of an economic activity, the VAT associated with it is an input tax, subject to the normal rules. If you are partially exempted, recovery must be done in accordance with the partial exemption method you use.
There are also two simplified versions of this de minimis test, which can first be used to check whether the limit is exceeded or not. We are reducing paper contact and asking you to submit your partial exemption application forms electronically. You can email your completed forms to [email protected] Where an undertaking has a combined partial exemption method and a commercial/non-commercial method, it does not use de minimis rules. There is no de minimis rule for commercial/non-commercial methods, so no VAT declared as non-commercial and exempt can be refunded. A company rents a building to another company of the same VAT group. It may be a taxable or exempt supply if the companies do not belong to the same VAT group. However, since that is the case, it is necessary to `browse` the supplies of the company renting the building in order to determine how to treat the input VAT paid on the maintenance of that building. Where it supplies only taxable supplies, input VAT should be claimed in full. If it only makes exempt supplies, it should not be used.
Where it makes both taxable and exempt supplies, input VAT should be treated as a residual amount and recovered using the partial exemption method. From 1 January 2011, you can apply for a special method (called a “combined method”) that combines your business or non-professional (except for private use) and partial exemption calculations.