The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point intime, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.
This guidance note looks at a number of the key VAT considerations to be taken into account when administering an insolvent business.
For insolvency more broadly, see the Insolvency ― overview guidance note.
For in-depth commentary on the legislation, see De Voil Indirect Tax Service V5.187.
Broadly, partial exemption applies where a business makes a mixture of taxable and exempt supplies, and as a result may not be entitled to recover all the VAT it incurs on costs. Partial exemption is covered inthe Partial exemption overview guidance note. Partial exemption requirements continue to apply to insolvent businesses.
In the context of insolvency, partly exempt businesses should consider whether their existing partial exemption recovery methods remain appropriate and result ina ‘fair’ recovery of input tax (given what is likely to be a significant change incircumstances). For example, a business operating the standard method (see the Partial exemption standard method guidance note) may decide that it is appropriate to agree a special method with HMRC (see the Partial exemption special methods guidance note). Agreeing a fairer method of VAT recovery may ultimately help the insolvent business to maximise its VAT recovery entitlement.
HMRC confirms inits guidance that insolvent businesses may seek approval for a change inpartial exemption method.
HMRC states that an insolvent partly exempt business may seek approval to end its partial exemption years at the ‘relevant date’ (see the Insolvency ― responsibility for VAT,
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