Partial exemption ― related issues

Produced by Tolley
Partial exemption ― related issues

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

  • Partial exemption ― related issues
  • Claiming late input VAT under partial exemption
  • Partly exempt group registrations
  • Transfer of a business as a going concern and partial exemption
  • Transferor
  • Transferee
  • Foreign and specified supplies
  • Financial services covered by specified supplies rules
  • Supplies of overseas branches
  • VAT accounting issues
  • More...

Partial exemption ― related issues

This guidance examines a number of important issues related to partial exemption.

For an overview of partial exemption more broadly, see the Partial exemption ― overview guidance note.

For in-depth commentary on the legislation and case law, see De Voil Indirect Tax Service V3.460.

Claiming late input VAT under partial exemption

If a partly exempt business fails to recover input tax that it is entitled to in the correct VAT return period, then it can normally make a ‘belated’ claim for the input tax. There are time limits (or ‘capping rules’) on making this sort of claim and input tax cannot be claimed more than four years after the due date for the VAT return it should have been included on.

If the annual adjustment is not capped under the capping provisions, but earlier periods covered by the annual adjustment are affected, the business can use the annual adjustment to recalculate the amount of recoverable VAT for the longer period. However, if a business has made an error in an earlier period, it cannot use the annual adjustment to correct that error. The business must use the corrected figures when undertaking the annual adjustments; however, the VAT amount must not be adjusted. Please see the Annual adjustments (longer period adjustments) guidance note for more information.

Belated claims (whether made via an error notification or any other means) must be based on the partial exemption method in place at the time the input tax was incurred.

When making such a claim, the business should consider the knock-on effect on other input tax deducted in that VAT return period and the relevant longer period calculation. For example, if a business is using an inputs-based method and it makes a revision to either the taxable or total input tax values, this will alter the amount of residual input tax deductible. The business must also reconsider the de minimis position for the initial tax period and longer period

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