Commentary

V3.465 Input tax treated as attributable to taxable supplies (the “de minimis” limits)

Part V3 Supplies, acquisitions and imports

V3.465 Input tax treated as attributable to taxable supplies (the “de minimis” limits)

V3.465 Input tax treated as attributable to taxable supplies (the “de minimis” limits)

Introduction

Article 173(2)(e) of Directive 2006/112/EC1 provides that where the amount of input tax which is not deductible by a taxable person is insignificant, member states may allow it to be treated as nil, ie it may be recovered in full.

UK legislation re-enacts this by providing that such input tax (“relevant input tax”) may be attributable to taxable supplies. The limits applicable to such input tax are generally known as the “de minimis” limits2.

From 1 April 2010, the existing de minimis test is supplemented3 by two further tests, intended to simplify the application of the de minimis limits. Thus there are in total three tests which may be applied, described below as “the simplified de minimis test”, “the main de minimis test”, and “the annual test”.

The simplified de minimis test4

With effect in relation to periods starting on or after 1 April 2010, a taxable person may treat all his input tax in a period (or longer period, as appropriate) as attributable to taxable supplies if, in that period—

  1.  

    (a)     his total input tax, less any input tax directly attributable to taxable supplies5, does not amount to more than £625 per month on average, and

  2.  

    (b)     the value of his exempt supplies6 does not exceed one half of the value of all his supplies7.

In the application of this test to a longer period, any input tax which is treated as attributable to taxable supplies in

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