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What are the new simplified Partial Exemption VAT Rules from April 2010?


Each VAT period check that

The amount of INPUT VAT on expenses you have paid relating to properties whose rent receivable is exempt from VAT is no greater than £625 PER MONTH, and is no more that 50% of the total input tax on your return. If this is the case you can claim all the VAT.

At the end of the Partial Exemption Year
At the end of a “longer period” which is the 12 months to the end of March – the same test applies using a 12 month average rather than an individual month.

If at this point you are within the limits then you can keep any VAT on the expenses you paid for these properties – BUT if it no longer applies and the average shows that you were over £625 x 12 (£7500) for the year of VAT on expenses, then you have to pay ALL the VAT back to HMRC.

NEW SIMPLIFIED RULES (from 01/04/10)

OPTION 1 - Each VAT period check


Test 1.

 Total Input Tax (all of it, not just the amount on exempt supplies) is no greater than £625 per month, and that the exempt supplies (zero rated rents received etc) are not more than 50% of all supplies (income).  >


Test 2.

Total input tax LESS total input tax relating to standard rated income (supplies) is no more than £625 per month and exempt supplies are not more than 50% of the value of all supplies

If either of these criteria are met, then you can claim the VAT
If they are not, then you cant

At the end of the Partial Exemption Year
If you pass Test 1 on an annual basis, then the VAT can be kept
If you pass Test 2 on an annual basis, then the VAT can be kept
If you FAIL Test 1 or 2 you need to do a full test using the OLD rules.


If you pass the following TWO tests then you only need to do your de minimis calculations once a year (not each VAT return and again at year end) provided all monies repayable are fully paid within the same accounting year.

1. The business must have passed the de minimus test over the previous year.
2. Have reasonable grounds for not expecting input tax to exceed £1million next year.