VAT Partial Exemption

Shab

Dear All,

Good morning!

I hope that this message will find everyone in the best of their health and mood,

I am working in the industry and I have one question regarding the VAT Partial Exemption.
How to calculate Partial Exemption VAT.
Our sales are non-Vatable as well as most of our supplies.

Please find an example,

Example,
Sales Income : £750,000.00
Purchases : £400,000.00 (including £120,000)

Can anybody please help me the calculation, or provide me an easy solution.
Also, I have checked it on www.Direct.gov.uk, but I couldn't make any sense of it.

Your help and assistance will be highly appreciated.

Regards
Shab

lisajayne1

Total Turnover divided by exempt turnover gives you a percentage.. This percentage is then set against how much you can reclaim from your input vat
e.g
total turnover is £100,000, £20,000 is exempt takings 100,000 / 20,000 x 100 = 20%

input vat is £30,000 /100 x 20 = £6,000 is irrecoverable - so input vat would be £24,000
the £6,000 is then debited against expenses as irrecoverable vat.
Hope this helps

Shab

Thank you very much for your reply,

So the turnover in example will be our sales or purchases.

I would really appreciate if you can kindly clarify this, this is where I get confuse.

Regards
Shab

lisajayne1

Turnover is Total sales including exempt..
you then breakdown the total sales into vatable and exempt and divide the exempt by the total. e.g
Total Turnover / Sales £100,000
Exempt £20,000
Vatable £80,000
£100,000 divide by (Exempt) £20,000, times by 100 gives you the percentage. This is then applied to the input (purchases/overheads) vat, as shown above

Regards

Shab

Dear Lisajayne,

thank you very much for your reply, and providing me with clear explanation.

i work in the education industry, and our sales are tuition and providing accommodation to the students, we were not registered for VAT in the past, and this is our first year of VAT registration. I have been told that i should calculate VAT on Partial Exemption basis

All of our Sales is VAT Exempted (tuition and other ancillary to the tuition) , and most of our supplies are VAT exempted too.

so how will the calculation work in our case.

Regards
Shab

Shab

thanks MrMe89,

well, it's a bit complicated, we are an English Language School, and therefore all our activities are exempted as for tuition, accommodation & etc.

We also, have a small canteen which generate not even 1% of our total income, which i have been told should be VATable and we also sell attraction tickets (London Eye, Madam Tussaude and Etc) which are VAtable too.

But from the beginning or our trade till now, we treat both activities on Cash basis as our sales not on invoice basis,

please let me know if your still need any further clarification from my end.

regards
Shab

lisajayne1

basically you will not be able to claim any input vat so I would look to deregister.
At the moment you would only be able to claim that 1% back against your input vat. The remainder is offset against expenses. Personally look to deregister unless you see a bit change in the future.


regards

KernowAccountant

lisajayne1 said:

basically you will not be able to claim any input vat so I would look to deregister.
At the moment you would only be able to claim that 1% back against your input vat. The remainder is offset against expenses. Personally look to deregister unless you see a bit change in the future.


regards

NOOOOOOOOOO!!!!!!!! Just no. You're jumping straight into apportionment of non-attributed VAT AND ignoring the potential application of the de-minimis rule. Depending on the numbers, VAT registration could be quite advisable in this scenario... we just don't have the information.

Input tax relating to taxable supplies made by a taxable person in the furtherance of a business is recoverable. First rule of VAT. Even for partially exempt businesses.