Partial exemption ― related issuesThis 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 exemptionIf a partially 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
Partial exemption ― overviewThis guidance provides an overview of the topic of partial exemption. Partial exemption is a core area for VAT purposes and one that a range of businesses may need to consider.For an A to Z of key terms associated with partial exemption, see the A to Z of partial exemption guidance note.For in-depth commentary on the legislation and case law on partial exemption, see De Voil Indirect Tax Service V3.460.A video overview of partial exemption can be found below:•Partial exemption (A)•Partial exemption (B)•Partial exemption (C)What is partial exemption?A business that makes both taxable and exempt supplies is partially exempt. Broadly, VAT on costs related (or ‘attributable’) to taxable supplies is recoverable whilst VAT incurred on costs related to exempt supplies is irrecoverable (subject to some de minimis rules for negligible amount of exempt input tax). Partial exemption methods exist so that businesses can apportion their input tax between costs used for taxable activities (where VAT is recoverable) and costs used for exempt activities (where VAT is irrecoverable). Partial exemption methods can also cover non-business activities on which VAT is generally also irrecoverable. HMRC’s published guidance on partial exemption can be found in Notice 706 and its Partial Exemption manuals. HMRC also publishes a Partial exemption toolkit which provides guidance for businesses and advisers dealing with partial exemption issues. Key issuesA number of key issues arise in relation to partial exemption. The table below sets out a number of the most important areas to
Discover our 2 Tax Guidance on Input Tax/Partial Exemption
Tax legislation doesn't stand still, and neither should you. At Tolley we're constantly building tools to give you an edge, save you time and help you to grow your business.
**Free trials are only available to individuals based in the UK, Ireland and selected UK overseas territories and Caribbean countries. We may terminate this trial at any time or decide not to give a trial, for any reason.
"The Tolley solution feels more like it has been written by somebody who understands the UK setup and is explaining the overseas elements."
European Metal Recycling Limited
Access all documents on Input Tax/Partial Exemption