61. Apportionment for dual use inputs

Summary

This section deals with deductibility for businesses engaged in making taxable supplies and who also engage in other activities. It provides that an accountable person is only entitled to deduct VAT on his or her purchase of ‘dual-use inputs’ to the extent that these inputs are used in making taxable supplies having due regard to the full range of activities carried out by the accountable person.

Traders who engage in both taxable and exempt supplies are required to determine the amount of input VAT, which correctly reflects the use to which the dual-use inputs are put.

Details

(1) Some terms are defined for the purposes of the section.

(2) The accountable person is entitled to deduct the proportion of tax on his or her purchase of dual-use inputs that is attributable to his or her deductible supplies and activities.

(3) The amount of tax which an accountable person can recover in respect of a qualifying vehicle as defined in section 59(1) is fixed at a maximum of 20% of the tax paid on that vehicle provided the conditions set out in section 59(2)(d) are met.

(4) The proportion of tax deductible must be calculated on the basis of the ratio of taxable turnover to total turnover, unless that method does not correctly reflect the taxable use of dual-use inputs or have due regard to the range of the person’s activities.

(5) Where the turnover method of apportionment of dual-use inputs does not correctly reflect the extent of the use of the inputs for taxable and non-taxable activities or have due regard to the range of the activities of the business, that method must not be used and any alternative method which does so must be applied.

(6) Where it is necessary to ensure the correct proportion of tax deductible, an accountable person must calculate separate proportions of tax deductible for the different sectors of his or her business, and must exclude certain incidental transactions such as property transactions from the calculation.

Article 174 of the VAT Directive provides for these options with an aim of ensuring that the method used gives the correct result.

(7) The proportion of tax deductible for a bi-monthly taxable period can be adjusted having regard to the annual turnover for that person’s accounting year. This provision is necessary to take into account the annual profile of the business rather than just a two-month profile. The detail of how this works is provided for in Regulation 17 of the VAT Regulations 2010.

Relevant Date: Finance Act 2020