Prorrata: the share of input VAT you can deduct
It appears as soon as part of what you invoice is exempt: training, healthcare, an association's activities. And it is adjusted in the last quarter, which is when almost nobody remembers.
The percentage of your input VAT you can deduct when your activity combines transactions carrying a right to deduct with exempt transactions.
Articles 102 to 106 of the VAT Act govern it. The idea is simple: if only part of your turnover carries VAT, only part of the VAT you bear is deductible.
How the general prorrata is worked out
Article 104: you divide the value of the transactions carrying a right to deduct by the total transactions of the year, multiply by a hundred and round the result up to the next whole number. 24.1% is 25%.
During the year you apply a provisional percentage — normally the previous year's final one — and on the last self-assessment of the year you work out the final one and adjust the deductions of the three previous quarters (article 105).
An example with numbers
A language school invoices €90,000 of regulated training over the year, exempt under article 20.One.9, and €30,000 of teaching materials at 21%:
- Prorrata: 30,000 ÷ 120,000 = 25%
- Input VAT for the year: €8,000
- Deductible: €2,000. The other €6,000 is cost.
If last year's prorrata was 40%, over the first three quarters 40 of every 100 euros borne will have been deducted. In the fourth quarter the difference has to be paid back.
When the general prorrata is too harsh, there is the alternative of the special prorrata. And when what you buy is durable, the rules on capital goods come in on top.
The mistake that comes up most
Not adjusting it in the last quarter. It is the most expensive oversight in this glossary: a provisional percentage is applied all year and the year is closed without adjusting it, so the year's deduction is wrong and form 390 gives it away.
Where this carries on in Cairos: Working out the 303 with a prorrata.
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.
The special prorrata rule
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.
VATCapital goods
Tangible goods intended to be used for more than a year as a tool of the trade or means of production, subject to a multi-year adjustment of the VAT deducted.
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.
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.