Business and non-business

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Business and non-business
  • Introduction
  • Option 1 ― leave the goods wholly outside of the business
  • Option 2 ― apportion the VAT
  • Apportion the VAT at the time the asset is acquired
  • Apportioning VAT based on intended use of the asset
  • Option 3 ― asset treated as a wholly business asset
  • Mixed use of services

Business and non-business

This guidance note provides information on how a business can determine the amount of VAT that can be recovered in respect of goods / services used for a mixture of business and non-business purposes. See the Lennartz accounting and private use of assets guidance note for information regarding using assets for private purposes and the Change of use guidance note for more information on the VAT treatment where the business has changed its use of that asset (ie the taxable use of that asset has increased or decreased).

Please note that the methods that can be used to determine the amount of recoverable input tax apply equally to private use of assets if the business uses any assets for business, non-business and / or private purposes.

Introduction

There will be occasions where a business purchases goods and services that will be used for business and non-business purposes.

If a business has incurred VAT on expenditure, including land and property, and the expense will be used for both business and non-business purposes, then it will need to devise a method to determine how much VAT can be recovered. Businesses have the following options available to them:

  1. leave the goods wholly outside the business and treat them as wholly non-business assets

  2. bring the goods partly within the business and apportion the tax incurred on them

  3. apportion the tax incurred on capital items of immovable property (including construction services), ships, boats and other vessels and aircraft using the Capital Goods Scheme

  4. treat certain types of goods as wholly business using the Lennartz mechanism.

More details on the options are provided below.

Option 1 ― leave the goods wholly outside of the business

Businesses can decide not to include an asset that they have purchased as part of their business assets and they will not be entitled to recover any VAT incurred on the purchase, acquisition of goods in Northern Ireland from a member state or importation of that asset.

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