V16.875 VAT: partial exemption—standard method over-ride

Part V16 Forms and other HMRC material

V16.875 VAT: partial exemption—standard method over-ride

V16.875 VAT: partial exemption—standard method over-ride

VAT Information Sheet 4/02, April 2002

This VAT Information Sheet explains how the standard method over-ride, announced in the Budget on 17 April 2002, affects businesses using the standard method to determine the VAT they can deduct. It also describes changes to the definition of “exempt input tax” that can affect businesses that first become partly exempt. This Information Sheet assumes readers are familiar with partial exemption, and unless stated otherwise terms used here have the same meaning as those in the partial exemption public Notice 706.

Very few businesses are affected by these changes. The standard method over-ride is targeted primarily on aggressive VAT avoidance by large businesses that use the standard method to deduct exempt input tax. Fully taxable businesses and partly exempt businesses using a special method are not affected by any of these changes and need read no further. Nor are the vast majority of businesses for whom the standard method produces a fair and reasonable deduction of VAT. Other than avoiders, very few businesses will be required to make an adjustment, and those that are will be as likely to benefit as to lose.

The changes take effect from 18 April 2002.

We would be pleased to receive any comments you may have about the over-ride. Please write or fax your comments to—Partial Exemption Team, Customs and Excise, 4th Floor West, New Kings Beam House, 22 Upper Ground, London SE1 9PJ. Fax—020 7865 4824.

1 Background

In principle, input tax incurred on purchases used to

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