The 2012 worldwide VAT, GST and sales tax guide

U NITED KINGDOM 685
directly related to exempt supplies is not deductible. Supplies
that are exempt with credit are treated as taxable supplies for
these purposes.
• The second stage identifies the amount of the remaining input
tax (for example, input tax on general business overhead) that
may be allocated to taxable supplies and recovered. The amount
of recoverable VAT is determined by making a pro-rata calculation
based on the respective values of taxable and exempt supplies
made.
If the standard calculation method gives an unfair or distortive
result, a special calculation method may be agreed to with the
U.K. VAT authorities. In some cases, the U.K. VAT authorities
may impose the use of a special calculation method.
Capital goods. Capital goods are items of capital expenditure that
are used in a business over several years. Input tax is deducted in
the VAT year in which the goods are acquired. The amount of
input tax deductible depends on the taxable person’s partial
exemption recovery position in the VAT year of acquisition.
However, the amount of input tax recovered for capital goods
must then be adjusted over time if the taxable person’s partial
exemption recovery percentage changes during the adjustment
period.
In the United Kingdom, the capital goods adjustment scheme
applies to the following assets for the number of years indicated:
• Land and buildings and related property expenditure valued at
£250,000 or more: adjusted over a period of 10 years
• Computer hardware valued at £50,000 or more: adjusted over a
period of five years
• Ships and aircraft valued at £50,000 or more: adjusted over a
period of five years
The adjustment is applied each year following the year of acquisition
to a fraction of the total input tax incurred (1/10 for land and
buildings and 1/5 for computer hardware, ships and aircraft). The
adjustment may result in either an increase or a decrease of
deductible input tax, depending on whether the ratio of taxable
supplies to total supplies made by the business has increased or
decreased compared with the year in which the capital goods
were originally acquired.
Refunds. If the amount of VAT recoverable exceeds the amount of
VAT payable in a period, a refund may be claimed. This is done
automatically by submitting the periodic VAT return. A taxable
person that receives regular repayments of VAT may request permission
to submit monthly returns to improve cash flow.
G. Recovery of VAT by nonestablished businesses
The United Kingdom refunds VAT incurred by businesses that are
neither established nor registered for VAT in the United Kingdom.
Nonestablished businesses may reclaim VAT to the same extent
as U.K. VAT-registered businesses. VAT incurred in the Isle of
Man may also be refunded through this procedure. For the general
VAT refund rules, see the chapter on the EU, page 208.
EU businesses. An electronic VAT refund procedure has been
introduced across the EU to replace the old paper-based (EU 8th