Partial exemption ― de minimis rules

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note examines the partial exemption de minimis rules.

For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.

In depth commentary on the legislation and case law can be found in De Voil Indirect Tax Service V3.465.

What are the partial exemption de minimis rules?

Under basic VAT principles, VAT is generally not recoverable on costs where those costs are used to make exempt supplies.

However, the partial exemption de minimis rules provide that where certain conditions are met then the input VAT attributable to exempt supplies is deemed to be sufficiently negligible that a business is entitled to recover the input tax it incurs in full without a requirement to restrict input tax recovery. Essentially HMRC accepts that if the amounts are low enough, then full recovery is permissible.

The de minimis rules can broadly be divided into the main de minimis test and two ‘simplified’ tests which supplement the main test. These tests set out the limits for determining if restricted

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