VAT Inputs, Outputs, and Special Schemes

What is 'input tax' in the context of VAT?

It is the VAT a business is charged on its business purchases and expenses.

What is 'output tax' in the context of VAT?

It is the VAT that is due to HMRC on supplies of goods or services made by a business.

How is the net VAT amount due to HMRC calculated on a VAT Return?

It is calculated as output tax less input tax.

What are the three current rates of VAT mentioned in the source material?

The standard rate (20%), the reduced rate (5%), and the zero rate (0%).

What is the normal basis for the timing of a claim for input tax?

The claim is normally based on the tax point of the transaction, which is usually the date the invoice is issued.

Are suppliers of zero-rated goods and services able to reclaim input VAT?

Yes, a VAT-registered supplier of zero-rated goods and services can reclaim input VAT spent on business purchases.

Are businesses that only supply exempt goods and services able to register for VAT and reclaim input tax?

No, they are not able to register for VAT and can never reclaim any input VAT.

A business that supplies both taxable and exempt goods or services is referred to as _____ _____.

partially exempt

In a partially exempt business, can the input VAT paid on purchases relating to exempt supplies normally be reclaimed?

No, the business will not normally be able to reclaim the input VAT relating to the exempt supplies it has made.

What is 'residual input tax' for a partially exempt business?

It is the input tax charged on purchases and expenses which cannot be directly allocated to either taxable or exempt supplies.

How is the recoverable portion of residual input tax calculated for a partially exempt business?

It is recovered according to the proportion that taxable supplies make up of the business's total supplies.

What does the 'de minimis' limit allow a partially exempt business to do?

It allows the business to recover all its input VAT, including the proportion relating to exempt supplies, if the amount is below a set limit.

What are the two conditions for the 'de minimis' test that allows full recovery of input tax?

The input tax relating to exempt supplies must be no more than £625 per month and less than 50% of the total input VAT in the period.

A business has £5,940 of input tax on exempt supplies and £7,000 on taxable supplies for the year. Can it use the de minimis rule?

Yes, the monthly average is £495 (<£625) and the exempt portion is 46% (<50%) of the total input tax.

Term: Blocked input VAT

Expenses on which a business cannot reclaim input VAT, such as for non-business purposes.

Is input tax on business entertainment for UK customers generally recoverable?

No, HMRC states that a business cannot recover input tax that relates to business entertainment.

What is the key exception to the rule blocking input VAT recovery on business entertainment?

Input tax relating to entertaining overseas customers (not from the UK or Isle of Man) is allowable and can be reclaimed.

Can a business reclaim input VAT on entertainment provided for its employees, such as a staff party?

Yes, this is considered to be for business purposes and the input VAT can be reclaimed.

If a business entertains employees and clients together, can any of the input VAT be reclaimed?

Yes, the business may be able to claim back the proportion of the input VAT that relates to staff entertaining.

Under what circumstance is input VAT on a car purchase NOT blocked?

If the car will be used wholly for business purposes and is not available for private use.

Name one type of business that is permitted to reclaim input VAT on the purchase of a car.

A taxi business, a driving instructor, a self-drive hire car business, or a car dealer (if the car is inventory).

If a business leases a car for mixed business and private use, what percentage of the VAT on the leasing payments can it usually claim?

It can usually claim 50% of the VAT on the leasing payments.

If a business could not reclaim the input VAT when it purchased a car, does it need to charge VAT when it later sells that car?

No, it cannot charge any VAT when the car is sold.

Can a business reclaim the input VAT paid on the purchase of commercial vehicles like vans or lorries?

Yes, businesses can reclaim the input VAT paid on the purchase of commercial vehicles in the normal way.

If a business pays for road fuel used by employees, when can it reclaim all of the input VAT charged without any further adjustments?

When all the fuel is used only for business purposes, which does not include driving to work.

What is one of the methods a business can use to account for VAT on fuel used for both business and private motoring?

It can reclaim all the VAT charged and then pay a separate fuel scale charge to HMRC.

What is the purpose of the fuel scale charge?

It is a charge to account for the VAT on fuel used for personal motoring in a company vehicle when the business has reclaimed all the input VAT on fuel.

What is the purpose of the fuel scale charge?

It is a charge to account for the VAT on fuel used for personal motoring in a company vehicle when the business has reclaimed all the input VAT on fuel.

If a vehicle's CO2 emissions figure is not a multiple of 5, how should it be treated when determining the fuel scale charge?

The figure is rounded down to the next multiple of 5.

A vehicle has CO2 emissions of 153g/km. What emissions figure is used to find its fuel scale charge in the table?

150g/km, as the figure is rounded down to the next multiple of 5.

How is the VAT portion of a VAT-inclusive fuel scale charge calculated?

By multiplying the VAT-inclusive amount by the VAT fraction, currently 20/120 (or 1/6).