According to the de minimis guidelines, VAT relating to exempt supplies can be recovered as long as the sum involved is less than £625 each month and less than 50% of the input tax incurred over the VAT accounting period (the original test). However, since April 2010, there have been two more straightforward tests that may be used:

The first test is to ensure that the overall amount of input tax paid does not exceed £625 per month on average and that the value of exempt supplies should not exceed 50% of the total value of all supplies. The second test is that the total input tax incurred, less the input tax directly related to taxable supplies, must not exceed £625 each month on average, and the value of exempt supplies must not exceed 50% of the value of all supplies.

If a charity passes Test One, Test Two, or the first test, it is considered de minimis; however, if it passes just one of these tests, it does not need to consider the other. Nevertheless, as was the case in the past, the charitable organization is still obligated to examine its de minimis status at the end of each financial year and account for any under- or over-recovery of the input tax as part of its amendment.

According to the guidelines, a de minimis test must be performed after each period. The de minimis test is typically used four or five times each year, but under certain circumstances, charities may elect only to apply the test annually. In addition, it permits a business that was de minimis during its prior partial exemption year to treat itself as de minimis during its current half-exemption year. It can therefore avoid the requirement for computations for partial exemption by provisionally recovering input tax related to exempt supplies during each VAT period. Charities must nevertheless check their de minimis status at the end of the year; if they do not meet the criteria, they must repay the input tax related to exempt supplies they provisionally recovered throughout the year. Despite this, there is no need for in-year calculations for the partial exemption.

The main drawback of applying the yearly test is that if a charity recovers input tax on exempt supplies during the year but fails the test at the end of the year, it must repay this input tax to HMRC. Therefore, it would not be suitable for a charity to choose the yearly test if it believes that it would likely fail the test at year’s end and that paying the input tax would be challenging.