The de minimis rule is one of the partial exemption principles, which can provide businesses with an opportunity to recover a certain amount of input tax relating to exempt supplies, which are otherwise blocked from recovery. It is vital that all businesses understand their obligations with regard to VAT compliance and guarantee that they operate within the parameters set by HMRC. Read the guide below to understand what the de minimis rule is for VAT, and why working with VAT experts can keep you compliant and help you to avoid the serious potential consequences that can arise from mistakes.

When does the de minimis rule apply?

These are special VAT provisions referred to as de-minimis rules where relevant input tax attributable to exempt supplies in any period or in any longer period is not more than

1. £625 per month ‘on average’, and
2. One half of all input tax for the period concerned,

all such input tax in that period is treated as attributable to taxable supplies and is therefore recoverable in full.

It is essential for businesses to monitor their taxable and exempt supplies closely, as well as their input VAT, to ensure they remain able to recover exempt input tax under these rules. The de minimis rule may be particularly beneficial for small businesses that have a mix of taxable and exempt sales.

If a business exceeds the de minimis limits, it will need to adjust its input tax claims accordingly. In this case, the business may not be able to recover the input tax associated with the exempt supplies, which will potentially increase VAT due to HMRC as a result of a VAT return. Therefore, it is crucial for businesses to keep accurate records of their sales and purchases and to review their eligibility for the de minimis rule on a regular basis.

When considering whether to register for VAT or apply the de minimis rule, businesses should take into account their specific circumstances, such as the volume and nature of their sales, the input tax they pay on purchases, and their overall VAT liability. Businesses should also be aware of any changes to tax regulations or VAT thresholds, as these may affect their eligibility for the de minimis rule or their obligation to register for VAT.

If you are unsure about your business's VAT obligations or whether the de minimis rule applies to your situation, you should seek advice from VAT specialists, who can provide guidance on the latest VAT regulations and help you ensure that your business is compliant with the relevant rules.

The VAT People can support businesses of all sizes to navigate the VAT landscape and ensure they fulfil their legal requirements. To understand how we can help you, contact our friendly team by calling 0161 477 6600 or filling out our contact form and we will get back to you at a convenient time for you. FAQs What is the “de minimis rule,” and how does it impact my business? The de minimis rule is a threshold set by HMRC that allows small businesses to recover input tax linked to exempt supplies subject to certain limits. This can increase the amount of recoverable input tax for partially exempt businesses.

FAQs

What is the "de minimis rule" and how does it impact my business?

The de minimis rule is a threshold set by HMRC that allows small businesses to recover input tax linked to exempt supplies subject to certain limits. This can increase the amount of recoverable input tax for partially exempt businesses.