View the related Tax Guidance about Residual input tax
Exemption ― finance ― dealing in money, credit and debts
Exemption ― finance ― dealing in money, credit and debtsDue to the complex nature of financial services and the number of different types of transactions that are possible, the subject of exempt finance has been covered in a number of guidance notes. This guidance note provides an overview of the VAT treatment of financial services transactions involving dealing in money, credit and debts within the UK. If financial services are provided to customers located in other countries, then the Reverse charge ― buying in services from outside the UK guidance note may be of further assistance. Under VATA 1994, Sch 9, Group 5, Item 1, the following supplies are exempt from VAT:‘The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.’However, note that under VATA 1994, Sch 8, Group 11, Item 1, the issue
A to Z of partial exemption
A to Z of partial exemptionThere is often a significant volume of technical terminology that is use when discussing partial exemption. The table below provides brief explanations of some of the key terms associated with partial exemption and, where appropriate, links to guidance notes containing further details.TermDefinitionFurther detailsAllocationVAT incurred on purchases is distributed or allocated to a specific sector within a special partial exemption methodTypes of partial exemption special methodsAnnual AdjustmentBusinesses provisionally reclaim VAT on each VAT return calculated using the partial exemption method. At the end of the tax year, a partial exemption calculation is undertaken using all of the figures for the whole tax yearAnnual adjustments (longer period adjustments)ApportionmentThe partial exemption calculation is intended to split the residual input tax between taxable and exempt supplies. The residual input tax will be apportioned between taxable and exempt
Gold ― investment gold and gold coins
Gold ― investment gold and gold coinsThis guidance note provides an overview of the VAT treatment of supplies of investment gold and gold coins. For supplies of non-investment gold see the Gold ― supplies of non-investment gold guidance note for more information. See the Flowchart ― is the supply of gold within the scope of UK VAT? for further assistance on determining the correct VAT treatment of the transaction.What is investment gold?Supplies of investment gold are exempt from VAT (subject to the option to tax explained below). Investment gold is:•gold with a purity of not less than 995 thousandths supplied either as a bar, wafer or of a weight acceptable to the bullion markets•a gold coin that qualifies as an investment gold coinInvestment gold coinsHMRC has published a list of investment gold coins and included a link to it in the online edition of Notice 701/21A. An investment gold coin is either (a) a coin included in the list published by HMRC that is current at the relevant time, or (b) a gold coin minted after 1800 that meets all of the following criteria:•it is of a purity of not less than 900 thousandths•it is, or has been, legal tender in its country of origin•it is of a description of coin that is normally sold at a price that does not exceed 180% of the open market value of the gold contained in the coinIt is the normal
TOGC ― VAT recovery
TOGC ― VAT recoveryThis guidance note looks at VAT recovery issues associated with transfers of a going concern (TOGC).For VAT recovery generally, see the Input tax ― overview guidance note and for an overview of TOGCs more broadly, see the TOGC ― overview guidance note.In-depth commentary on the legislation and case law around TOGCs can be found in De Voil Indirect Tax Service V2.226.Why is VAT recovery an issue when there is a TOGC?As described in the TOGC ― overview guidance note, a TOGC is neither a supply of goods nor services and is therefore outside the scope of VAT. This raises questions over how to treat any VAT on costs associated with the TOGC.The treatment of VAT on costs differs slightly for the seller (transferor) and the purchaser (transferee). The position for each is considered in this guidance note.What kinds of costs are associated with a TOGC?There are often costs associated with a TOGC, common examples of such costs include:•solicitors’ fees•estate agents’ costsNotice 700/9, para 2.5What is the VAT recovery position for the seller?VAT on costs associated with the TOGC is treated as non-attributable or residual for the seller (see the Partial exemption ― de minimis rules guidance note). The implications of this are summarised in the table below:
Partial exemption ― types of special method and sector specific information
Partial exemption ― types of special method and sector specific informationThis guidance note looks at several of the most common ways that a partial exemption special method may operate in order to calculate recoverable VAT.For special methods generally, see the Partial exemption special methods guidance note. For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.In depth commentary on legislation and case law can be found in De Voil Indirect Tax Service V3.462.Sectorised methodsSometimes it will make sense to split a business into separate parts as there is not a single method which would fairly apportion residual input tax across all areas of the business. Each different part or ‘sector’ then calculates its own residual recovery rate in a way that is appropriate for how residual costs are used in that sector. Such a method is commonly known as a ‘sectorised’ approach. Each sector in a sectorised method must reflect the following:•the use made of the goods and services in that sector•the structure of the business•the type of activity undertaken by that sectorSI 1995/2518, reg 102(1A)(d)HMRC states that a sectorised method will only be appropriate when the additional burden of separate calculations (for both the business and HMRC) is offset by the additional accuracy the method provides. It will normally only accept a sectorised method when a business has separate accounts based on established accounting principles for each sector. Separate accounts may mean completely separate accounts or a single set
Exemption ― finance ― securities
Exemption ― finance ― securitiesThis guidance note covers the VAT treatment of various types of financial securities. SecuritiesThe issue, transfer or receipt of, or any dealing with, any security or secondary security in the UK is exempt from VAT (but see the impact of the Kretztechnik decision in ‘VAT treatment of share issues’ below). For these purposes, a security or secondary security comprises:•shares, stock, bonds, notes (other than promissory notes), debentures, debenture stock or shares in an oil royalty•any document relating to money, in any currency, which has been deposited with the issuer or some other person, being a document which recognises an obligation to pay a stated amount to bearer or to order, with or without interest, and being a document by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable•any bill, note or other obligation of the Treasury or of a Government in any part of the world, being a document by the delivery of which, with or without endorsement, title is transferable, and not being an obligation which is or has been legal tender in any part of the world•any letter of allotment or rights, any warrant conferring an option to acquire a security included in these provisions, any renounceable or scrip certificates, rights coupons, coupons representing dividends or interest on such a security, bond mandates or other documents conferring or containing evidence of title to or rights in respect
Partial exemption ― de minimis rules
Partial exemption ― de minimis rulesThis guidance note examines the partial exemption de minimis rules. For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.In depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V3.465.What are the partial exemption de minimis rules?Under basic VAT principles, VAT is generally not recoverable on costs where those costs are used to make exempt supplies. However, the partial exemption de minimis rules provide that where certain conditions are met then the input VAT attributable to exempt supplies is deemed to be sufficiently negligible that a business is entitled to recover the input tax it incurs in full without a requirement to restrict input tax recovery. The de minimis rules can broadly be divided into the main de minimis test and two ‘simplified’ tests which supplement the main test. The main test requires a full partial exemption calculation in order to determine whether its conditions are satisfied and therefore whether input VAT can be recovered in full. In contrast, where one of the simplified tests is satisfied this can avoid the need to perform a full partial exemption calculation whilst still entitling a business to recover VAT to in full on its costs. For an interactive illustration of how the tests are to be applied, see our interactive flowchart. Alternatively, for a static pdf version, see the Flowchart ― De minimis tests.What are the simplified de minimis tests?If a business
NHS bodies ― recovering input tax incurred on business and non-business expenditure
NHS bodies ― recovering input tax incurred on business and non-business expenditureThis guidance note provides an overview of what VAT can be recovered by NHS bodies on costs incurred for the purposes of their business and non-business activities. For more information on the supplies made by NHS bodies, please see the Hospitals and health institutions guidance note.BackgroundThe majority of activities carried out by NHS bodies are statutory in nature and are therefore treated as non-business activities for VAT purposes. The main non-business activity carried out by an NHS body is the provision of healthcare services. NHS bodies can also carry out business activities, such as the supply of catering services, sale of goods from vending machines and any on-site shops, etc and they will be expected to charge VAT on the any taxable activities in the normal way. The NHS body may also make some business supplies that will be exempt from VAT. Exempt supplies include the provision of private healthcare, financial services, certain land and property transactions, certain training and education services, etc. Please see the Exemption ― overview ― items that are exempt from VAT guidance note for a list of exempt supplies. It is important that the NHS body accurately differentiates between exempt and zero-rated supplies as VAT is not normally recoverable on costs incurred in connection with exempt supplies under the partial exemption rules. VAT incurred on costs can, however, be recovered in connection with zero-rated supplies made by an NHS
Partial exemption ― standard method
Partial exemption ― standard methodThis guidance note covers the standard method for determining VAT recovery under partial exemption.For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.For in depth commentary on the legislation and case law, see De Voil Indirect Tax Service V3.461.What is the standard method?The standard method is the default way that a partly exempt businesses (ie a business which makes a mixture of taxable and exempt supplies) must determine how much VAT it can recover on costs. At a very high level the standard method can be divided into two steps:•the ‘direct attribution’ of input tax•the apportionment of ‘residual input tax’As well as these two steps, businesses will also need to consider whether they qualify for full VAT recovery under the partial exemption ‘de minimis’ rules (see the Partial exemption de minimis limit guidance note). They are also under an obligation to ensure that the standard method provides a ‘fair and reasonable result’. If it does not, the business then they may be forced to make an adjustment under the ‘standard method override’ (see later in this guidance note).It is open to businesses to agree a bespoke special method of VAT recovery with HMRC if they do not think the standard method produces a fair result (special methods are covered in the Partial exemption special methods guidance note).Direct attribution and residual VATThe first stage of the standard method is to
Capital goods scheme ― transfers, disposals and VAT groups
Capital goods scheme ― transfers, disposals and VAT groupsThis guidance note provides an overview of the CGS implications of the following transactions:•transfer of assets as part of the transfer of a business as a going concern (TOGC)•disposal of a capital item•VAT group implicationsThis note should be read in conjunction with the Introduction to the capital goods scheme and Capital goods scheme ― intervals and adjustments guidance notes. See ‘How to apply the Capital Goods Scheme’ by Jackie Yarrow in Tax Journal, Issue 1053, 20 (15 November 2010).Transfer of a business as a going concernIf a business transfers a capital item as part of the TOGC, it will need to give the purchaser details of the capital item. The purchaser will be required to continue to make any further adjustments due in respect of the capital item for the remaining intervals. The following implications need to be considered by the parties involved in the TOGC.Purchaser takes over the existing VAT registration numberIf the purchaser decides to keep the existing VAT registration number, the following applies:•the adjustment interval in which the business is transferred continues without a break•the seller is not required to make any CGS adjustments for that interval•the purchaser is responsible for completing the CGS adjustment calculation for the whole of that interval. The interval ends on the last day of the transferee’s longer period ending immediately after the transfer (or if no longer period then applies, on the last day of the transferee’s tax year following the day of transfer). The transferee must make any adjustment for that interval and any remaining intervals in the normal way. Longer periods and tax years both normally run to the following 31 March, 30 April or 31 May depending upon the owner’s VAT periods.•the purchaser is responsible for continuing to make any future adjustments required in respect of that asset for the remaining intervalsPurchaser does not take the existing
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