A business cannot normally recover input tax on VAT exempt supplies. However, if the exempt
input tax is below the de minimis limits it can be treated as fully taxable and so, the full input tax
on exempt supplies can be reclaimed.
Where the exempt input tax is insignificant it can be treated as if it were taxable input tax and be
recovered in full if its total value is less than a prescribed amount. An amount that is
insignificant is known as ‘de minimis’ and is set out in law for partial exemption purposes.
A business can be classified as fully taxable in any tax period, applying the de minimis limit, if
the total value of its exempt input tax is not more than:
– £625 per month on average; and
– half of the total input tax in the relevant period.
The total value of exempt input tax is that which is directly attributable to exempt supplies plus
the proportion of any residual input tax that is attributable to exempt supplies.
Exercise:
