Commentary

BB/27D/03 VAT—partial exemption: Special Method Override Notice

Part V16 Forms and other HMRC material

BB/27D/03 VAT—partial exemption: Special Method Override Notice

BB/27D/03 VAT—partial exemption: Special Method Override Notice

Business Brief, Iissue 27. 10 December 2003

This Business Brief article describes the effect of the Special Method Override Notice announced in today's pre-Budget report and which comes into force from 1 January 2004.

Summary

The Special Method Override Notice (Notice) only affects partly exempt businesses that operate a partial exemption special method and where Customs have—

  1.  

    —     served a Notice on the business; or,

  2.  

    —     approved a Notice served by the business.

A Notice allows Customs or business to correct the results of an unfair special method until a replacement method is implemented.

No other businesses are affected by this measure.

Background

A business that makes both taxable and exempt supplies is known as partly exempt and must apply a partial exemption method to calculate how much of the VAT it incurs on its costs and purchases it can deduct. A partial exemption method is supposed to ensure that the business can deduct a fair and reasonable amount of VAT on costs and purchases that are “used or will be used” in making taxable supplies (“the principle of use”).

Most partly exempt businesses operate the standard method of partial exemption but some businesses, particularly the most complex ones, operate a special method that has been customised

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