What happens if a business passes either test 1 or test 2 under VAT partial exemption?

When a business passes either test 1 or test 2 under VAT partial exemption, it can treat itself as de minimis, allowing it to recover all of its input VAT on supplies. The de minimis threshold typically means that the business's exempt supplies do not exceed a certain percentage of total supplies, making it eligible to reclaim all input tax.

This provision is beneficial for businesses that have a mixture of exempt and taxable supplies since it simplifies their VAT accounting. If a business meets the de minimis criteria, the complexities of maintaining detailed records of input VAT allocations for various types of supplies are significantly reduced.

This option aligns with the principles of VAT legislation, which aims to ensure that businesses are not unduly burdened by VAT compliance for minimal amounts of exempt supplies. Thus, passing either test allows the business to reclaim all input VAT, promoting cash flow and encouraging business operations.