Partial exemption ― de minimis rules

Produced by Tolley

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

  • Partial exemption ― de minimis rules
  • What are the partial exemption de minimis rules?
  • What are the simplified de minimis tests?
  • Simplified test 1
  • Simplified test 2
  • What is the main de minimis test?
  • Interaction of the de minimis tests with annual adjustments
  • Annual de minimis test
  • Partial exemption de minimis tests ― practical points

Partial exemption ― de minimis rules

This 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 meets one of the two simplified de minimis tests, it will be able to

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