V16.960 VAT—partial exemption – changes to the de minimis rules
Information Sheet 4/10, March 2010
1.1 Who should read this information sheet?
Smaller-sized businesses that currently benefit, or think they may benefit, from the partial exemption de minimis rules. This information sheet assumes you have an existing knowledge of the current partial exemption rules. Further information about partial exemption can be found in Public Notice 706 “Partial Exemption”.
1.2 What is this information sheet about?
It provides guidance on two changes to simplify the de minimis rules that affect VAT periods commencing on or after 1 April 2010. The changes are optional and can be adopted by businesses without approval from us. The two changes are referred to as:
— simplified tests (section 2)
— annual test (section 3)
1.3 Why are these changes being introduced?
The current de minimis rules require businesses to carry out detailed partial exemption calculations. These changes are being introduced to allow the vast majority of businesses to confirm their de minimis status using far simpler calculations that rely on information that a business has readily to hand.
The changes follow a consultation on ideas to simplify the partial exemption rules, which confirmed strong support for their implementation. They build on changes made last year to simplify the standard method by further reducing administrative burdens on businesses.
2 Simplified tests
2.1 How does the current de minimis test work?
The current test requires a business to calculate how much input tax it has incurred on costs relating to exempt supplies in accordance with its