I wouldn't assume that the client has not opted to tax and you need to confirm that with them (definitiely one to get in writing).
De-minimis limits are the recovery of input tax, even that related to wholly or partially exempt supplies.
To be recoverable the business must pass any one of these three tests :
1) total input tax less than of equal to £625 per month on average and value of exempt supplies is less than or equal to 50% of total supplies 2) total input tax less input tax directly attributable to taxable supplies is less than or equal to £625 per month on average and value of exempt supplies is less than or equal to 50% of value of total supplies 3) input tax relating to exempt supplies is less than or equal to £625 per month on average and input tax related to exempt supplies is less than or equal to 50% of total input VAT.
There's more to it and you really need to see it in action to understand it but that is basically what it is.
Sorry to point you at a book rather than giving a fuller answer but I don't think that I can do this subject justice in a short reply here. If you can get access to a copy the Kaplan study text for ACCA paper P6 covers this in detail with examples (refer to Chapter 20).
kind regards,
Shaun.
-- Edited by Shamus on Sunday 21st of April 2013 08:36:45 PM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I have just taken on another new client . It is a limited company.
One side of the business rents property to other businesses and receive's monthly rent. He hasn't provided invoices though, just receipt for income (this shows no VAT, VAT number etc). Would there be any rent on this?
Another side of the business is that they rent out chairs within a salon to various self employed hairstylists. For these he provides invoices for and they show VAT.
I have read somewhere about opting to tax? I'm not 100% sure of the circumstances, but do I assume that this is not the case. So no Output tax on commercial property rent?
I noticed also in a file that was given to be some correspondence from previous bookkeeper regarding the last VAT return, stating that "As the VAT on the exempt services was higher than the de - minimis limit this quarter it was not reclaimable in full.". What would this relate to? What is the de-minimis limit?
Sorry for all the questions, but this is a new area for me as a bookkeeper, so I am trying to understand it.
I'm drafting up some questions for the client regarding their VAT position, as they've not mentioned anything!!
I've gone through HMRC's example on calculating the partial exemption, which is making sense. I'm just wondering now how best I can show it in VT. I may have to create to custom transactions
I'll just go back now and delete my first attempt at posting the deminimis tests.
thats a damn good question about VT and I'm afraid to say that I don't know... The deminimis tests are not an option but rather something that should be built into the process so it's something that should be there but not sure if it is and I don't have the time to play around with it at the moment to check it out (but you've definitely just put it on the to do list).
If you get to play with it first please let me know your findings,
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Shaun's Partial Exemption comments are very clear.
Do review the property rental (your first question). The option to tax can only be applied if the property has commercial (not residential) use. Do not rush to opt. The primary reason for doing so is that there is substantial input tax at stake (hence the Partial Exemption question). Do consider the various options, and do your arithmetic first. And make a file note of your decision, with explanation.
Thanks all, my client has confirmed that he has not opted in to tax. The first month's transactions are very small, so by the looks of it they will fall within the de-minimus level every quarter for reclaiming input tax.
Shaun regarding the VT software I have created new transaction codes, so I can post expenses & income to taxable/exempt/partial. This way I can run transaction lists every quarter to obtain totals and adjust where necessary. As the business is small this seemed like the easiest option. But if you find an alternative method please let me know.
. It is a limited company.
