Partial Exemption VAT

partial exemption VAT

Partial Exemption VAT

Do you provide a mixture of supplies where the VAT treatment of each is different?

Where a business makes both taxable and exempt supplies then it has to calculate how much VAT it is entitled to recover on business expenditure – this is done by way of a partial exemption calculation.

Here is a list of -> Exempt Supplies

Where a business makes fully taxable (VATable) supplies it can register for VAT and can recover in full any VAT that it incurs in the course of making those taxable supplies.

Where a business makes fully exempt supplies it is not entitled to register and so has no ability to recover VAT that it incurs in the course of its business.

Partial Exemption Calculations:

Standard method

This is the default method and doesn’t require approval from HMRC for use, and there are 3 stages involved;

  1. The total value of income defined as ‘taxable’ is worked out as a proportion of the total income to work out how taxable the business is as a percentage. This percentage is rounded up to the next whole number under this method.
  2. The VAT on expenditure is attributed to one of three categories, A = wholly taxable use, B = wholly exempt use, and C = unattributable, or ‘pot’. All of ‘A’ and the taxable percentage of ‘C’ will always be recoverable in full. The remainder is defined as ‘exempt input tax’.
  3. The exempt input tax value is compared to the relevant ‘de minimis’ limits. If the comparison shows that the value meets both conditions of the de minimis test then all VAT on expenditure can be recovered in full (the business is deemed to be ‘fully taxable’). If either element of the test is not met then the business is ‘partly exempt’, and only the taxable part is recoverable (being A + % of C as above).

Special method

Where the standard method does not accurately reflect the business structure or sector, and does not produce a ‘fair and reasonable’ result, then it is possible to request that a special method be used instead. This would require HMRC approval, and would use different calculations (for example proportional floor space, employee time, head count) rather than income values. The calculation would still require attribution of VAT on expenditure, and would still be compared to the same de minimis limits.

Standard method override

Where the standard method does not produce a fair and reasonable result it may have to be overridden. This would apply where the amount of input tax recovered “differs substantially” from the actual use for taxable purposes. The definition of substantial is where the difference exceeds

  • £50,000 or
  • 50% of the ‘pot’ value (C) and £25,000

Examples of situations where this might apply include delayed or abandoned projects where input tax might be recovered in advance, business units using costs to make different supplies, or costs incurred in one year that will not be used until a later year.

Annual adjustments

All methods require an annual adjustment that effectively recasts the values for the longer period and may result in adjustments – either VAT to be paid back or additional VAT to be recovered. There are also some simplifications to the standard method that allow provisional values to apply throughout the year with an annual adjustment at the end, and some simpler calculations that avoid having to carry out a full partial exemption calculation.

Making Tax Digital – MTD

Your options on how to make the quarterly and annual adjustments will depending on the Software you have chosen to file your MTD tax returns with.  Here at Darrall & Co we will do our best to guide you through this.

We’ve been through the mill already – read about this here:

Still using Spreadsheets … we have a solution for you:

Making Tax Digital – Bridging Software

Click here to contact us for Help !


Making Tax Digital – Pilot Test

making tax digital pilot

Read the Post on LinkedIn

Today I filed my company VAT return as part of the MTD Pilot and have decided to report my findings to you. I used TaxCalc VAT filer which was simple and effective.

This process was not without some degree of pain due to issues arising from the HMRC VAT/MTD system. This involved multiple phone calls and emails over the last few months that get acknowledged but never actioned. It is very difficult to get through to any HMRC representative that understands what is going to happen when the switch over happens and even harder to get help on the Pilot. I still have unanswered questions.

It also did not help that the original Software that I tried to use, which bills itself as “MTD Ready” was unable to submit under MTD. Yes they are one of the Big Players and yes they are HMRC Recognised ( Even more surprising is that they have stated to me that they have no intention to provide MTD services for businesses that are not mandated to do so. Therefore if your turnover is less than £85,000 per year and you volunteer for MTD you will be disappointed in the near future.

If you need help – I’m only a phone call away!

Click here for Contact Us Details

Making Tax Digital – Bridging Software

MTD bridging software

Making Tax Digital (MTD) – Bridging Software

During a presentation by HMRC today titled “Talking Points 22/01/2019- Making Tax Digital for Business” it was confirmed that it will be possible to continue to use bridging software after April 2020.

The end of the “soft landing period” will not see a removal of the ability to use bridging software.

If you have not heard the term bridging software before – in short it sends data from a spreadsheet to HMRC in way that is compliant with MTD.

At Darrall & Co we have HMRC approved bridging software and also can support Cloud based solutions from the following suppliers (in no order of preference):

QuickBooks – view QuickBooks options

Xero – view Xero options

FreeAgent – view FreeAgent options (Free for NatWest Customers)

Sage – view Sage options

If you would like some care and guidance in deciding which solution is best for you, please contact us

Buying and renovating property

capital vs revenue

Buying and renovating a property

Will you get tax relief for say £50k of repairs that you are planning to do at the new premises that you have recently acquired with a view to renting it out.

The following link details HMRC’s opinion

Allowable expenses do not include ‘capital expenditure’ – like buying a property or renovating it beyond repairs for wear and tear.

  • If the expenditure is “Capital” it gets added to the cost of the property and you get tax relief when you sell.
  • If the expenditure is “Revenue” you get tax relief against income.


Deciding if the repairs represent a Revenue cost :

Click here to read the full HMRC guidance   The relevant part is duplicated here:

Repairs to reinstate a worn or dilapidated asset are usually deductible as revenue expenditure. The mere fact that the customer bought the asset not long before the repairs are made does not in itself make the repair a capital expense. But a change of ownership combined with one or more additional factors may mean the expenditure is capital. Examples of such factors are:

A property acquired that wasn’t in a fit state for use in the business until the repairs had been carried out or that couldn’t continue to be let without repairs being made shortly after acquisition.

The price paid for the property was substantially reduced because of its dilapidated state. A deduction isn’t denied where the purchase price merely reflects the reduced value of the asset due to normal wear and tear (for example, between normal exterior painting cycles). This is so even if the customer makes the repairs just after they acquire the asset.

The customer makes an agreement that commits them to reinstate the property to a good state of repair. For example, Fred is granted a 21-year lease of a property in a poor state of repair by his landlord that he, in turn, sublets. When Fred’s landlord grants him the lease Fred agrees that he will refurbish the property. Fred’s expenditure on making good will be capital expenditure and not allowable. But Fred’s landlord may be chargeable on the value of the work under the premiums rules (PIM1200 onwards) and Fred may qualify for some relief (see PIM2230 onwards).

My loose interpretation if the fully renovated property is worth say:

  • Value: £450k and you pay £330k being – £280k (for the premises) + £50k (repairs) which combined make it worth £450k, then the £50k is most likely capital.
  • Value: £310k and the £330k spent puts it into a liveable state without actually improving the property (i.e. without making it worth more that £310k) then there is probably a fair degree of repair included in the £50k.

This is an area which can involve a lot of work.  My advice is to ensure that the builder provides a full costed itinerary of the works that they are undertaking and makes it as clear as possible such that the above question of “is it capital or revenue” is very easy to interpret.  This would also present a strong argument to HMRC if they were to ever challenge the costs.

I hope that you have found this interesting and that some of the links prove to be of help.  If you however you would like some structured advice then please be sure to get in touch:

This blog came about as part of an exercise looking into Stamp Duty.  Feel free to click here to read it.

Stamp Duty Land Tax (SDLT)

stamp duty land tax SDLT

There is much that can be said about Stamp Duty Land Tax and I do not intend to try and cover all potential aspects of this in a humble blog.

This blog covers a few issues that I was looking into recently in respect of residential properties:


SDLT = Stamp Duty Land Tax

BTL = Buy to Let

HMRC – H M Revenue & Customs

Italics = Direct download from the listed webpage/link


Buying Flats in one premises that might be considered to be multiple properties:

Unless the Flats have entirely separate access points (e.g. no shared front door) they are likely to be regarded as one premises for SDLT purposes.  e.g. Two flats bought together costing say £280,000 would most likely not be regarded as two separate properties of £140,000 (which would otherwise reduce the overall charge to SDLT).

Click to read HMRC Manual which gives a fuller explanation

How much stamp duty might be due?

This is a useful link where you can run various scenarios, including if the property is not your only one.

If it’s not your only property chances are you will pay an additional charge.

Click through to a stamp duty calculator

Buying through a company – does it avoid the additional charge?

If you have one property already, will buying your second through a company remove the additional charge?

This article confirms a company also pays the additional charge

Companies must pay the higher rates for any residential property they buy if:

  • the property is £40,000 or more
  • the interest they buy is not subject to a lease which has more than 21 years left

If the property costs more than £500,000, the 15% higher threshold SDLT rate for corporate bodies may apply instead.”

I hope that you have found this interesting and that some of the links prove to be of help.  If you however you would like some structured advice then please be sure to get in touch:


Please also feel free to read the related blog on buying and renovating property

(Nb – this blog will not be active until after 1st December 2018)

Cyber Security & GDPR

cyber security and GDPR

Cyber Security & GDPR

Both are hot topics at the moment as our Inboxes are plagued with messages asking us for permission to keep and use our data.

The data protection act of 1998 was well overdue an update to bring our attention to the risks in the modern environment but it is not just about ticking a few boxes in a database.

We really need to have Cyber Security on the forefront of our minds to protect ourselves from crime.  Like locking your car doors and closing windows when you’re away from it.  You won’t catch the data thief on CCTV – but you do have data encryption to help ensure that what they do steal, they cannot actually use.

For an easy to read explanation of the wider aspects of Cyber Security, please click this link through to the National Cyber Security Centre:

This link provides a good resource for understanding how Cyber Security overlaps with the General Data Protection Regulations (GDPR) that came into force on 25th May 2018.


USB Memory Sticks

Ever lost a memory stick?   GDPR could mean that you are responsible for what happens with the data that it contains (legal advice should be sought if you have concerns in this respect).

It is possible that your windows operating system contains Bitlocker which would enable you to encrypt such devices.  Find out how to do this here:

If this is not available to you then bring it to us and we can do it for you (there is no charge to our clients for this).

Password Managers

One of the questions we wanted answered was in respect of Password Managers that are available for free or as a subscription.  Some are available as Browser add ons, others as software and/or Apps.

The short story is that the National Cyber Security Centre says “Yes. Password managers are a good thing.”

So we are currently researching the market in this respect.

Making tax digital update

Making Tax Digital for Business (MTDfB) – Feb 18 update

Today I sat through a one hour Making Tax Digital (MTDfB) webinar, presented by HMRC, which was specifically for agents.

They talked about how the software developers are the experts in making digital information transfer data via API (application programming interface) and that if you want to know their plans then you should speak to them to find out what they are doing.

Note – HMRC’s own developers are widely speculated to have quit when confronted with the prospect of IR35 being applied to them. IR35 being HMRC’s legislation which was forcing them to regard their own IT contractors as employed due to the nature of their working arrangements.

Without IT contractors willing to work for HMRC, the April 2018 implementation date went out of the window and a mock cry of “Hurrah” echoed around the accounting community.

What did I find out?

Having spoken to a few key accountancy software providers in the last week I am well aware that they are representing that they are waiting for HMRC to decide exactly what they want. I suspect also wanting some tasty tax breaks for doing the work for them.

Bearing in mind that in about a month’s time (April 2018) we were originally anticipating having to submit quarterly returns digitally via API on pretty much all levels.  I wonder if this time next year we will be talking about a further imminent deferral or starting to take the April 2019 implementation date seriously.

One useful clarification today was that spreadsheets will be acceptable. With the following caveat: So long as the information therein is transferred via API and includes certain essential bits of data.  The “essential” data does appear to have been defined. One small success.

The webinar lead me to look around the internet

Try Google searching “how do I submit my spreadsheet to HMRC via API” and you will end up with not a lot of useful information and one very recent blog from HMRC themselves:

They started blogging on Making Tax Digital 3 years ago and I think there is sufficient information in this update to explain why it isn’t really moving forward.

My questions went unanswered so I did not gain any new knowledge from the largely wasted hour:

When the webinar came to it’s Q&A section I asked pointed questioned about what specific guidance was being given to software providers in order to help them build the API. My questions were some of the few that remained unanswered at the end of the session.

If you are really keen you can be a guinea pig:

If you are VAT registered you can sign up as a volunteer to test the system from April 2018. If you do, I’d love to hear your feedback.

Read more on why we do need to take this seriously:

That’s all for now….

Making Tax Digital (MTD)

In this post I hope to answer the question – why do we need to take this seriously? 

Here is what the Government has to say in their article on 13/7/17: