V3.461B Non-attributable/residual input tax
Input tax to be attributed under this head (henceforth termed “residual input tax”) includes not only input tax which is attributable to the making of both taxable and exempt supplies1, but also input tax which is not specifically attributable to any supply (or is attributable to a non-business activity which is used to benefit the business2) but which is used for business purposes, such as general business overheads3.
A proportion of residual input tax is attributed to taxable supplies, using either the “value-based method” or the “use-based method”. This attribution is made on a provisional basis, for each VAT period, and is adjusted over a “longer period”.
Where there is an immediately preceding longer period, the attribution should be made on the basis of the percentage recovery rate for that longer period, although the value-based method may be used provided it is used for all periods falling within the current longer period. In other words, if X's recovery rate for the longer period ended 31 December 2014 was 20 per cent, he may use that rate for the periods 3/15, 6/15, 9/15 and 12/15, or he may use the value-based method provided it is used for all four periods4.
Where there is no immediately preceding longer period, the attribution may be made using either the value-based method or the use-based method5.
For the longer period adjustment, see V3.466.
Attribution is made according to the ratio of the value of taxable supplies made by the taxable person to