Budget 2015: Deductible VAT relating to foreign branches

Existing rules mean that UK VAT registered businesses can take into account the supplies their overseas branches make when calculating deductible VAT on their overhead costs.

With effect from the first partial exemption tax year commencing on or after 1 August 2015, businesses will not be able to take into account supplies made by foreign branches when performing their partial exemption calculations.

Deduction of input tax on overheads used to support activities made by the overseas establishments of the business will be calculated by reference to supplies made by the principal establishment in the UK.

Partially exempt businesses with foreign branches are likely to suffer a greater restriction to their input tax on overhead purchases in the future.