Value Added Tax

Partial exemption ― annual adjustments (longer period adjustments)

Produced by Tolley
  • 06 Apr 2022 18:13

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

  • Partial exemption ― 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?
  • Practical points ― annual adjustments

Partial exemption ― annual adjustments (longer period adjustments)

This guidance note looks at partial exemption annual adjustments and longer period adjustments.

For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note. See also in particular the related Partial exemption ― standard method and Partial exemption ― special methods guidance notes.

For in-depth commentary on the legislation and case law in this area, see De Voil Indirect Tax Service V3.466.

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 (see, for example, the discussion of provisional recovery in the Partial exemption ― standard method guidance note).

At the end of the tax year (or other longer period), a business is 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. Where there is a difference between what is calculated as recoverable for the whole period and what was actually recovered during the period then an adjustment is made for the difference. 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

SI 1995/2518, regs 99, 107(1), (2); PE37000; Notice

Access this article and thousands of others like it
free for 7 days with a trial of TolleyGuidance.

There's no margin for error. Think Tax.
Think Tolley.

TolleyGuidance gives you direct access to critical, comprehensive and up-to-date tax information and expertise you can rely on.


Popular Articles

Class 2 national insurance contributions

Class 2 and Class 4 NIC are payable by self-employed earners and partners in a partnership. This guidance note considers Class 2 contributions. For Class 4 contributions, see the Class 4 national insurance contributions guidance note.Class 2 NIC arise where a self-employed individual has income

23 Mar 2022 17:20 | Produced by Tolley Read more Read more

Tax equalisation

IntroductionTax equalisation is widely used by multi-national companies or group moving employees from one country to another. It is not a statutory concept but is an arrangement between an employer and employee.The idea behind tax equalisation is that an employee accepting an assignment somewhere

22 Mar 2022 12:21 | Produced by Tolley Read more Read more

Payment of tax due under self assessment

Normal due dateIndividuals are required to pay any outstanding income tax, Class 2 and Class 4 national insurance and capital gains tax due for the tax year by 31 January following the end of the tax year (ie 31 January 2021 for the 2019/20 tax year). From 6 April 2020, UK resident individuals who

Read more Read more