Commentary

V16.945 VAT—Partial exemption — changes to the standard method

Part V16 Forms and other HMRC material

V16.945 VAT—Partial exemption — changes to the standard method

V16.945 VAT—Partial exemption — changes to the standard method

Information Sheet 4/09, March 2009

1 Introduction

Who should read this information sheet?

Businesses that operate the partial exemption standard method and their advisers. This information sheet assumes you have an existing knowledge of the current partial exemption rules. Further information about partial exemption can be found in Public Notice 706 “Partial Exemption” (Part V8).

What is this information sheet about?

This information sheet provides guidance on four changes to the partial exemption standard method that affect VAT returns commencing on or after 1 April 2009. Three of the changes are optional and can be adopted by businesses without approval from HM Revenue & Customs (HMRC). The three optional changes are referred to as:

  1.  

    —     in-year provisional recovery rate (section 2)

  2.  

    —     early annual adjustment (section 3)

  3.  

    —     use-based option for new partly exempt businesses (section 4)

The final change, which is referred to as – Widening the scope of the standard method (section 5) – is compulsory and affects businesses that make:

  1.  

    —     supplies of services to customers outside the UK

  2.  

    —     certain financial supplies such as shares and bonds

  3.  

    —     supplies made from establishments located outside the UK

These changes are being introduced following the consultation on ideas to simplify the partial exemption rules confirmed strong support for their implementation. The changes aim to simplify the partial exemption rules and reduce compliance costs for businesses.

2 In-year provisional recovery rate

2.1 What were the old rules?

Under the old rules (prior to 1 April 2009), a business operating the

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