Commentary

V7.344 Partial exemption—standard method calculations

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.344 Partial exemption—standard method calculations

Part V7 Tax planning | Commentary

V7.344 Partial exemption—standard method calculations

In reality, most of the problems caused by partial exemption concern the attribution of input tax (ie which category the VAT should be attributed to) and the proportion of 'residual input tax' that can be claimed. It is a question of fact whether an item of expenditure is exclusively attributable to an activity or whether it is not attributable at all (or is attributable to both categories) and is thus an overhead. Businesses need to take care with such attribution as misattributed input tax can lead to either underclaims of input tax or overclaims. Neither is desirable.

A business must calculate the amount of residual input tax to be reclaimed using the standard method (no permission required by HMRC) unless it makes a request to adopt a special method of calculation.

The standard method means that residual input tax is reclaimed using the following formula:

Some important points to remember:

  1.  

    •     The denominator (bottom) part of the fraction includes 'all supplies'. Don't forget

To continue reading
View the latest version of this document, as well as thousands of others like it, sign in to TolleyLibrary or register for a free trial