Annual adjustments (longer period adjustments)

Produced by Tolley
Annual adjustments (longer period adjustments)

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Annual adjustments (longer period adjustments)
  • What is an annual adjustment?
  • What period does the adjustment cover?
  • Tax year
  • Other longer periods
  • How do I calculate the annual adjustment?
  • When must I declare the annual adjustment?
  • What can longer period adjustments not be used for?

This note provides an overview of the rules regarding partial exemption annual adjustments or longer period adjustments. This note should be read in conjunction with the Partial exemption standard method and Partial exemption special methods guidance notes.

What is an annual adjustment?

A business will normally be required to undertake a partial exemption calculation each VAT return period in order to provisionally determine the amount of recoverable input tax incurred during that period. At the end of the tax year (or other longer period), the business will be required to redo the partial exemption calculation using the figures for the whole tax year / longer period in order to calculate the actual amount of recoverable input tax for the whole period. The annual adjustment also allows the business to:

  1. review the actual use of the goods and services over the longer period

  2. review whether the exempt input tax incurred over the longer period was under the de minimis limit

What period does the adjustment cover?

Under normal circumstances, the annual adjustment covers a business’s tax year but in certain instances, it will cover a different longer period which is shorter than 12 months.

Tax year

A tax year is a 12-month period and normally ends on the 31 March, 30 April or 31 May depending on the VAT return periods allocated to the business. For businesses that render monthly VAT returns, their tax year ends on the 31 March.

Many businesses elect to have a VAT return stagger that matches their financial year-end. HMRC will normally agree to change the VAT return periods if there is no evidence that the request to change the VAT return periods is intended to minimise the effect of a change in VAT liability, with a view to applying a more favourable de minimis limit, or will result in an unfair recovery

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