Partial exemption – the standard method

V3.461 Standard method

Introduction

Regulations made under VATA 1994 s 26(1) prescribe a standard method for calculating the amount of input tax provisionally attributed to taxable supplies in any prescribed accounting period1.

Provisional nature of attribution

The attribution is provisional in the sense that it may be later adjusted in accordance with the regulations—

  1.  

    (1)     by reference to a longer period2;

  2.  

    (2)     where an intention to use goods in making taxable and/or exempt supplies is not fulfilled and they are used in making different supplies within six years3; and

  3.  

    (3)     in relation to capital items4.

An adjustment may also be required where the attribution, on the basis of a single period or longer period, “differs substantially” from the actual taxable use. The adjustment is referred to as the “standard method override”. The override is described in V3.461C.

The regulations are the means of providing for the “fair and reasonable attribution” required under VATA 1994 s 26(3) and are intended to be comprehensive. Therefore, if there is nothing in the regulations to enable a later adjustment to the attribution to be made, the provisional attribution becomes in effect absolute5.

In the case of longer periods commencing on or after 1 April 2009, the provisional attribution of residual input tax is made as follows—

  1.  

    (a)     where there is an immediately preceding longer period6

  2.  
    1.  

      (i)     by using the percentage recovery rate for that immediately preceding longer period, or

    2.  

      (ii)     by using the value based method (see V3.461B below), provided

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