HMRC have released a brief concerning partially exempt businesses whose trading activities have changed due to coronavirus.


Businesses that make both taxable and exempt supplies are partially exempt for VAT purposes and are required to perform calculations to determine the proportion of residual input tax that is linked to an onward taxable supply and is therefore recoverable.


By default, the standard method for calculating this amount can be applied whereby the value of taxable supplies made is taken as a proportion of all supplies made by the business. However, if the business does not believe this produces a fair and reasonable representation of the businesses activities a special method (PESM) may be agreed with HMRC before being used.


If the activities of a partially exempt business have changed due to the ongoing coronavirus pandemic this will affect the application of partial exemption special methods. As such, any required adjustments should be provided to HMRC through the accelerated notification process established for these specific circumstances alongside a declaration that this new method is fair and reasonable. The newly implemented accelerated notification process can also be utilised by traders subject to the capital goods scheme and the necessary adjustments.


If you or your client are partially exempt and undertake calculations of this nature, please seek expert advice at the earliest opportunity to clarify how a change in activities may directly impact the amount of input VAT recoverable by the business and how HMRC should be notified of these changes. You can contact our team of consultants by calling our free VAT helpline on 0161 477 6600.

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