PE63750 - Other Partial Exemption issues: research and development
Input tax incurred by businesses in respect of research and development work will normally not be directly attributable to any supply by the business. Hence, input tax recovery is, therefore, determined by the liability of the business’s activities that the research and development supports. Where the activities are taxable, the input tax is fully recoverable. Where it is exempt, the input tax is irrecoverable. However, where research and development work is of a more general nature which cannot be said to lead directly to identifiable supplies, provided that it does not relate to any non-business activities, the input tax is to be treated as part of the business’s non-attributable input tax. Where the business is partly exempt, the input tax is apportioned in accordance with the business’s partial exemption method.