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HMRC internal manual

VAT Partial Exemption Guidance

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HM Revenue & Customs
Updated
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Partial Exemption methods: example paragraphs: apportionment calculations

Detail on apportionment methods can be found at PE36300. Remember that you may need to further define the elements to be included within the calculations. You must take great care to ensure you use only the wording appropriate to the method you are approving and delete any wording that does not apply to your scenario.

The deductible element of the [non-attributable input tax] [mixed use VAT] [non-attributable input tax and mixed use VAT] [allocated to this sector] shall be quantified by multiplying that input tax by the formula below, which shall be expressed as a percentage:

Outputs

Value of taxable supplies made * x 100 [by the [business] [sector] in the period.] x 100
   
Value of total supplies made [and non-business activities undertaken] [by the [business] [sector] in the period.]  

Headcount

It will normally be appropriate to specify that staff numbers will be measured on a full time equivalent basis.

The number of staff employed * exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The total number of staff employed * [exclusively on business activities] [by the [business] [sector] in the period.]  

For a taxable over taxable plus exempt [plus non-business] the calculation, would be:

The number of staff employed * exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The number of staff employed exclusively in making taxable supplies plus the number of staff employed exclusively in making exempt supplies [plus the number of staff employed exclusively * in undertaking non-business activities] [by the [business] [sector] in the period.]  

Staff time

The total staff time used exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The total staff time used in making all supplies [and in undertaking non-business activities [by the [business] [sector] in the period.]  

Floor space

The total area of property used, or to be used, exclusively in making taxable supplies x 100
   
The total area of all property used  

For a taxable over taxable plus exempt [plus non-business] the calculation, would be:

The total area of property used, or to be used,* exclusively in making taxable supplies x 100
   
The total area of property used, or to be used, exclusively in making taxable supplies plus the total area used, or to be used, exclusively in making exempt supplies plus the total area used, or to be used, exclusively in non-business activities.  

Inputs

The value of supplies, imports and acquisitions received which are used, or to be used, exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The value of supplies, imports and acquisitions received [for business purposes] [by the [business] [sector] in the period.]  

For a taxable over taxable plus exempt [plus non-business] the calculation would be:

The value of supplies, imports and acquisitions received * which are used, or to be used, exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The value of supplies, imports and acquisitions received* which are used, or to be used, exclusively in making taxable supplies plus the value of those which are used, or to be used, exclusively in making exempt supplies plus the value of those which are used, or to be used, * exclusively in undertaking non-business activities [by the [business] [sector] in the period.]  

Input tax 

The value of input tax used, or to be used,* exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The total value of input tax [The total value of VAT incurred] [by the [business][sector] in the period.]  

For a taxable over taxable plus exempt [plus non-business] the calculation would be:

The value of input tax used, or to be used,* exclusively in making taxable supplies [by the [business] [sector] in the period.] x 100
   
The value of input tax used, or to be used, exclusively in making taxable supplies plus the value used, or to be used, exclusively in making exempt supplies plus the value of VAT used, or to be used, * exclusively in undertaking non-business activities [by the [business] [sector] in the period.]  

Transaction count

Remember that you will need to carefully define the nature of a transaction to be counted for the purpose of the method.

The number of taxable transactions [made by the [business] [sector] in the period.] x 100
   
The total number of transactions [including non-business transactions] [made by the [business] [sector] in the period.]  

For a taxable over taxable plus exempt [plus non-business] the calculation would be:

The number of taxable transactions [made by the [business] [sector] in the period.] x 100
   
The total staff time used exclusively in making taxable supplies plus the total staff time used exclusively in making exempt supplies plus the total staff time used exclusively * in undertaking non-business activities [made by the [business] [sector] in the period.]  

‘Use’ calculation wording

This wording is usually appropriate to deal with the apportionment in a ‘catchall’ sector, dealing with VAT not allocated to, or dealt with by, other sectors. Normally this will be for new business activities that arise after the approval of the method.

[For methods approved under regulation 102ZA i.e. methods incorporating a business/non-business apportionment.] Mixed-use VAT incurred in respect of activities not covered elsewhere in this method is input tax to the extent that it is incurred on goods or services which are used, or to be used, to make taxable supplies or exempt supplies, expressed as a proportion of the whole use or intended use. This includes any sectors not specified under paragraph [number] which are introduced subsequent to this approval letter.

[For all methods.] Non-attributable input tax incurred in respect of activities not covered elsewhere in this method is deductible to the extent that it is incurred on goods or services which are used, or to be used, to make taxable supplies, expressed as a proportion of the whole use or intended use. This includes any sectors not specified under paragraph [number] which are introduced subsequent to this approval letter.

Rounding in apportionment calculations

We have previously allowed single sector outputs, values-based methods to be rounded-up to the next whole number. This policy was changed by an announcement in the 2005 budget and for all new special methods approved or directed on or after 1 April 2005 we will only allow rounding to two or more decimal places. This policy should also be applied as and when existing special methods are reviewed or updated.

All ratios are to be expressed as a percentage and shall be rounded up to two or more decimal places in each tax period and the longer period adjustment.

Estimated provisional recovery

In each prescribed accounting period, the annual recovery percentage of the previous tax year [for this sector] shall be used to calculate the deductible proportion of non-attributable input tax [mixed-use VAT and/or non-attributable input tax] [for this sector]. The calculations detailed above shall be used when performing the longer period adjustment as per paragraph [insert number].