Question

1. Shanahan Ltd is registered for VAT and is partially exempt. During the year the company incurred input tax of £136,000. Of this, £100,000 was attributable to taxable supplies, £13,000 was attributable to exempt supplies and £23,000 was unattributable. The total VAT exclusive value of supplies made by Shanahan Ltd for the year was £975,000. £100,000 of the £975,000 was in respect of zero rated supplies. £80,000 of the £975,000 was from exempt supplies. How much of Shanahan Ltd’s input tax is recoverable?

1. £113,000
2. £121,112
3. £100,000
4. £87,000

Answer 1

Answer is option (B) £121,112
Explanation & Workings:
Input tax incurred exclusively in making taxable supplies can be recovered in full. Input tax incurred exclusively in making exempt supplies cannot be recovered. Residual input tax must be allocated between taxable and exempt supplies, and the partial exemption calculation is the mechanism for calculating this split.
	Input Credit	Status	Amount
	£100,000 was attributable to taxable supplies	Fully Recoverable	£1,00,000.00
	£13,000 was attributable to exempt supplies	Not Recoverable	£0.00
	£23,000 was unattributable	Partially Recoverable (23000*91.794872%)	£21,112.00
		Total Input VAT Recoverable	£1,21,112.00
	The standard method allocates the residual VAT using regulation 101 of SI 1995/2518. The formula is:
	Formula
	Input VAT unattributable *(Taxable supplies / Taxable + exempt supplies )=	£23000*(£895,000 / £975,000 = 21112)