The special prorrata: separating VAT by what it is used for
Instead of one percentage for everything, three buckets: what goes to transactions with VAT is deducted in full, what goes to exempt ones is not deducted, and only the shared part is apportioned.
The method that lets you deduct in full the VAT on expenses used only for transactions carrying a right to deduct, instead of applying a single percentage to everything.
Articles 103 and 106 of the VAT Act govern it. Input VAT is sorted into three groups:
- VAT borne exclusively on transactions carrying a right to deduct: deducted at 100%.
- VAT borne exclusively on transactions without a right to deduct: 0%.
- VAT shared between the two: the general prorrata percentage is applied to it.
When it stops being voluntary
Article 103.Two.2 makes it compulsory when the total deductible VAT under the general prorrata exceeds by 10% or more what the special one would give. That threshold used to be 20% and Ley 28/2014 lowered it, with effect from 2015: plenty of people are still working with the old figure.
The option is exercised on the terms of article 28 of the VAT Regulations and, once exercised, binds you for three calendar years.
An example with numbers
The language school from the earlier example, with a general prorrata of 25% and €8,000 of input VAT split like this:
- €3,000 of teaching materials resold with VAT → 100% deductible
- €3,000 of costs used only for the exempt teaching → €0
- €2,000 of shared costs (rent, electricity, the accountant) → 25% = €500
Total under the special prorrata: €3,500, against €2,000 under the general one. Fifteen hundred euros of difference for sorting the invoices.
The reverse case exists too: if the general one came out at €3,500 and the special one at €3,000, the general would exceed it by 16.7% and the special one would become compulsory.
The mistake that comes up most
Assuming it is always voluntary. When the deduction under the general prorrata exceeds the one the special prorrata would give by 10% or more, staying on the general one is not a choice: it is an improper deduction, and an inspection corrects it with interest.
Where this carries on in Cairos: How this is handled in the accounts.
Terms that go with this one
Almost no tax concept makes sense on its own. These three are the ones that most often turn up beside it.
Prorrata
The percentage of your input VAT you can deduct when your activity combines transactions carrying a right to deduct with exempt transactions.
VATInput VAT
The VAT you pay your suppliers on purchases and expenses, deductible only if the goods or the service are used in your activity and you have the full invoice.
VATFiling period
The interval each self-assessment is worked out and filed for: quarterly as a general rule, monthly in a defined set of cases.
This, handled without thinking about it
Cairos keeps the invoices, the record books and Hacienda's forms from the same data, so the theory on this page turns into boxes that are already filled in.
No card and no minimum term.