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VAT Partial Exemption

What HMRC is trying to achieve is a balance between being allowed to have Exempt income with no VAT charged on it, and yet claiming all the VAT back on expenses relating to that income.

So, if your VAT on expenses, RELATING TO THIS INCOME ONLY, is greater than the current rate (£625 per month), you cannot claim any of it on that months’ return. If less, then all can be claimed.

If at the end of the tax year (e.g. 31/3 – not YOUR financial year) you recalculate this figure for the whole 12 months and you are under the limit (12 x £625) you can then reclaim what you haven’t disallowed, during that time.

On Landmark software you would do this by:-

Firstly, setting up various VAT codes so that you can code all your transactions appropriately and not “revisit” them later. CAN YOU IDENTIFY ALL INCOME THAT IS EXEMPT? This is usually your rental income but could be other things besides. (e.g. Code E).

You will need to collect together all expenses that relate 100% to these (exempt income) properties etc., using, in the attached example, PE for Partial VAT.

You will then need to collect together all expenses that  partly relate to these properties etc., so for instance an advisor might come to advise on the WHOLE estate but only part of this invoice will be allowable to put it in the P (Potential) for partially exempt.

In Landmark, you can then produce a report showing the totals of each VAT Status/Code to put in spreadsheet similar to the example below. If it calculates that you can claim it all then there is nothing to be done but if it calculates that you are not allowed to claim it, then a journal is required before you confirm your return.

Disclaimer This guide is given for general information purposes only. You must not rely on the information in this guide as an alternative to taxation advice from an appropriately qualified professional.  If you have any specific questions about any taxation issue you should consult your accountant or tax adviser.