PE72400 - Guidance for specific trade sectors: land and property: methods of apportionment
There are a number of common types of apportionment for partial exemption purposes, at property level, sector/business line level or at a group level. In addition to outputs or inputs based calculations, measures including occupiable space or number of properties could be used for example;
| Taxable occupiable space |
|---|
| Total occupiable space |
| Taxable properties |
|---|
| Total properties |
| Taxable leases |
|---|
| Total leases |
| Number of taxable transactions |
|---|
| All transactions made |
| Time spent exclusively on taxable activity |
|---|
| All time spent |
NB: Taxable inputs = net costs wholly used in making taxable supplies
Exempt inputs = net costs wholly used in making exempt supplies
There is no ‘right answer’ about which method best suits each business but the following might be a starting point in considering the issues:
Output based methods would normally not be suitable where:
- the output and related input tax are likely to fall into different tax years (e.g. a speculative development);
- the values can be distortive (e.g. property rents may differ significantly depending on what they are (commercial/residential) and where they are (regional price differences), but the respective values of related input tax may not fluctuate in the same way);
- values can fluctuate dramatically (e.g. buying and selling properties).
Similarly, input based methods and other method types can also be unsuitable;
- in circumstances where values can be mismatched or comparisons are not appropriate (e.g. treating a purchase of shares as similar to a purchase of land);
- where values are distortive, or subject to fluctuation not in line with more general expenditure (e.g. land values may differ depending on location but the value of construction services are standard); and
- if a business does not want to be required to revisit past calculations up to 6 years later as a consequence of VAT recovery changing in retrospect because, for example, intended taxable supplies do not ultimately materialise.