VAT – Effect of the VAT rate increase on de minimis calculations for partially exempt businesses
The standard rate of VAT is going to increase from 17.5% to 20% on 4 January 2011 and will have potentially serious consequences for many partially exempt businesses and organisations. One type of organisation that will potentially be effected is ‘members’ golf clubs but it may have similar consequences for all partially exempt businesses, especially if your business is close to breaching one of the de minimis conditions (exempt input VAT is not recoverable if it exceeds £7,500 per annum). For the purposes of this short article we have not documented the detailed VAT regulations regarding de minimis as to do so would be a lengthy process to explain them fully. However, we do outline the potential implications and those organisations that are likely to be most effected by the VAT rate increase, partially exempt businesses, should have an understanding of de minimis.
If you are a partially exempt business you should now be considering the implications for your business of this increased VAT rate as it may have disadvantageous consequences for your business. We have recently been advising two members golf clubs of the implications of the VAT rate increase and in both instances it is likely that both clubs will fail to qualify to be de minimis although in both instances each club has been de minimis for many years. We have estimated that both clubs will incur approximately £8,000 of input VAT that it cannot recover in its current Partial Exemption Year. The implication for both golf clubs is serious as both had budgeted to reclaim all input VAT they incur in the current financial year and this is not likely to be the case.
If you are a golf club or business that is partially exempt (and currently recovers all its input VAT, as you are de minmis) it is recommended that you approach your usual contact at Wylie & Bisset by telephoning 0141 566 7000 or emailing info@wyliebisset.com.
