Commentary

V7.358 Different types of partial exemption special method

Part V7 Tax planning
Part V7 Tax planning | Commentary

V7.358 Different types of partial exemption special method

Part V7 Tax planning | Commentary

V7.358 Different types of partial exemption special method

There are many different special methods that could be proposed by a business – the following are the main alternatives to the standard method.

Alternative methods

Floor area method

The situation in Example 1 identified a common basis of calculation, namely, an apportionment method based on floor area. This method is very simple to operate and is widely used by many businesses.

For example, a major cost of most non-profit making golf clubs is the cost of their clubhouse. In many cases, the percentage of the floor area allocated to the bar activity (taxable) will be a very high proportion of the total floor area in the building, but the percentage of bar income may be quite low compared to total income (which would include golf membership and entry fees, exempt from VAT). In such cases, it may be worthwhile to request a floor space method to apportion the input tax on clubhouse expenses.

Inputs method

The most common methods based on inputs are:

  1.  

    •     taxable input tax divided by total input tax (ie input tax wholly attributable to the making of taxable supplies as a percentage of total input tax)

  2.  

    •     taxable input tax divided by taxable input tax plus exempt input tax

  3.  

    •     taxable inputs (net of VAT) divided by taxable inputs plus exempt inputs (both net of VAT)

In reality, a special method based on inputs

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