PE30500 - Partial Exemption methods: the standard method
Attribution to taxable supplies
The standard method
The standard method is the default option for calculating deductible input tax for all businesses, which they must use unless we have approved or directed an alternative special method. Only calculations that follow the mechanics set out below are under the standard method.
Legal basis
In UK law the standard method is introduced in VATA 94, section 26(3) and set out in the VAT Regulations SI 1995/2518, Regulation 101.
Attribution to taxable supplies
Regulation 101 sets out what input tax can be attributed to taxable supplies.
Regulation 101(2)(b) states that there shall be attributed to taxable supplies the whole of the input tax on such of those goods or services as are used or to be used by him exclusively in making taxable supplies.
Regulation 101(2)(c) states that no part of the input tax used or to be used exclusively in making exempt supplies, or in carrying on any activity other than the making of taxable supplies shall be attributed to taxable supplies.
A proportion of input tax incurred for both taxable and exempt supplies is attributed to taxable supplies. This proportion is determined by the standard method calculation set out in Regulation 101(2)(d). The formula to be used is:
value of taxable supplies in the period (excluding VAT) x 100
value of all supplies in the period (excluding VAT)
This gives the claimable percentage of non-attributable input tax. - see below for information as to how many decimal places the percentage should be taken.
Rounding
This is set out in Regulations 101(4) and 101(5).
| If it is not a whole number… | if… |
|---|---|
| it is to be rounded up to the next whole number or it is to be rounded up to 2 decimal places | the business does not incur more than £400,000 residual input tax per month on average or the business incurs more than £400,000 residual input tax per month on average. |