Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Input Tax

HM Revenue & Customs
, see all updates

Is it input tax: VAT Act 1994 section 24(5) apportionment

This part of the manual covers apportionments designed to take account of domestic or private use. Guidance on other non-business apportionments, for example for charities, lottery funded projects or the voluntary sector is contained in VAT Business/Non-Business VBNB30000.

You should note that apportionment does not apply to Schedule 5 Services purchased from outside the member States. (See Notice 741A Place of supply of services.)

A business may, if goods are bought for business and private use, choose to apportion VAT so the input tax claimed reflects the use to which the goods are intended to be put.

It is important to remember that the right to treat VAT as input tax also extends to business activities which the business intends to carry on at a future date. A business does not need to use the supplies at once for its business. It is enough that it intends this use at the time of purchase. VIT25600 deals with changes of use of both goods and services bought for business purposes including cases where planned business activities:

  • fail to materialise; or
  • take a different form to that envisaged at the time input tax was claimed.

The law does not specify that any particular method of apportionment is used. There are no regulations that let HMRC impose the method they consider most suitable. The only legal requirement is that there should be an apportionment that fairly and reasonably reflects the different purposes to which the goods or services are put.

It is primarily down to the business to make an apportionment. If the business proposes a method which:

  • meets the overall objective of being fair and reasonable; and
  • is not overly complex to operate or check

HMRC will accept it wherever possible.

VAT Act 1994, section 24(5) says that a business should apportion tax to reflect its business and non-business purposes. VIT10200 gives guidance on what is meant by business purpose. It describes the tests established in Rosner (FW) (t/a London School of International Business) (see VIT61360) and Ian Flockton Developments Ltd (see VIT61080).

Although after Rosner the question of what is a business purpose is no longer entirely a subjective question it is still one on which views will vary. As a result there is unlikely to be a single “fair and reasonable” result but rather a range of apportionments that can be justified.

HMRC will normally accept an apportionment proposed by a business provided it is not completely outside this range of supportable results. HMRC should not normally challenge an apportionment unless it differs widely from our staff’s own judgement. It is not normally productive to argue over a small difference in an apportionment for private use of a telephone.

Where non-business use is regarded as insignificant HMRC may use its discretion to allow a waiver of apportionment. There is no statutory de minimis level in terms of a monetary or percentage figure. It is a matter of judgement whether the benefit in terms of revenue is outweighed by:

  • the administration cost to the business: and
  • the cost to the Department in checking that an apportionment has been carried out.

If HMRC decides to allow a waiver of apportionment HMRC will write to the business and tell it that the arrangement applies only for as long as the existing low level of non-business use is kept up. If the extent of non-business use goes up to a significant level the business will need to make an apportionment.