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Complex puzzle
Key points
- Businesses apportion their residual tax using the standard method unless they agree a special method with HMRC.
- If a business qualifies as de minimis when it has carried out its calculations it can claim all input tax including the tax that relates to its exempt activities.
- Partially exempt traders must carry out an annual adjustment calculation.
- It is important to consider if there is a direct and immediate link between an expense and a source of income when allocating input tax.
In theory partial exemption is very simple: a business fully claims input tax on expenses that directly relate to its taxable activities (often referred to as ‘T’); no input tax is claimed on expenses that directly relate to exempt activities (referred to as ‘E’); and if an expense relates to both activities or is a general overhead then input tax is partly claimed...
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