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HMRC internal manual

VAT Input Tax

Is it input tax: mixed use of services

Most of the time if a business pays VAT on services that it intends to use for:

  • business purposes; and
  • non-business or private purposes

it will have to apportion the VAT incurred. The business can only recover the part that relates to business use (subject to any partial exemption restriction).

The only exception to this rule is services that create new goods. In principle these services (excluding building/construction services and services that create or refurbish ships, boats or other vessels and aircraft) can be treated as if they were the costs of acquiring the goods for Lennartz accounting purposes. See VIT25280.

A business must apportion:

  • building/construction services; and
  • services that create or refurbish ships, boats or other vessels and aircraft.

The VAT recovery will be subject to the Capital Goods Scheme adjustment mechanism unless it falls below the de minimis values. For further information on this mechanism see VIT25260

Once the VAT on services has been apportioned there is no requirement for this to be adjusted. This applies even if there is a change in the subsequent business use or intended business use. The exception to this is where a fixed non-business apportionment method has been agreed that is subject to an annual adjustment.

This treatment of other services reflects the fact that most services are quickly consumed. It explains why most services that have an enduring quality such as construction services are:

  1. treated differently; and
  2. subject to monetary limits, subject to an adjustment mechanism.