BB/8B/99 VAT—the three-year cap and partial exemption
Business Brief, Issue 8. 31 March 1999
This Business Brief clarifies Customs' policy about how the three-year cap affects businesses' partial exemption position, illustrated by a number of examples.
The purpose of the three-year cap is to provide certainty and stability for both the Exchequer and the taxpayer. The provisions are not intended to have any impact on the normal system of deduction and adjustments to deduction as set out in the VAT Regulations.
Any trader or business currently operating the partial exemption rules correctly will not be affected by the three-year cap. This also applies to businesses which discover a mistake and make the necessary correction within the three-year time limit. In other words, the three-year cap only affects businesses who do not claim the input tax to which they were entitled or claim input tax to which they were not entitled, and fail to correct this within three years.
In addition, if a business fails to make an initial deduction of input tax (or gets the initial deduction wrong) and the error falls in a period which is more than three years old, the error cannot