How is the de minimis limit calculated?

The calculation of the de minimis limit pertains to how input VAT can be treated when it cannot be directly linked to taxable or exempt supplies. The chosen answer focuses on identifying the non-attributable input VAT—that is, input VAT that does not qualify as directly associated with the taxable or exempt supplies.

This approach emphasizes the proportion of input VAT that is not clearly attributable to either category, which should then be compared to the value of taxable supplies made relative to the total supplies made. This ratio helps determine whether the company can reclaim a portion of the input VAT based on its taxable output, ensuring compliance with tax regulations while allowing for appropriate recovery of taxes.

This method is essential for maintaining accurate records and for tax reporting, as businesses must be vigilant in distinguishing which portions of their input VAT can be reclaimed based on their taxable activities. The calculated value serves as a guideline for determining how much of the input tax can actually be claimed back from HMRC.