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Faster process for temporary changes to partial exemption methods


Published: 24 Mar 2021 Update History

VAT-registered businesses whose partial exemption method does not give a fair result because their trading activities have been affected by COVID-19can request temporary alterations to their calculation methods. HMRC has confirmed it is now speeding up the process.

In Revenue and Customs Brief 4, HMRC explains a new accelerated process to swiftly respond to requests to change a partial exemption method that has become unfair due to the effects of the coronavirus pandemic on the business.

The partial exemption rules apply where a VAT-registered business makes a mixture of taxable and exempt supplies.

The standard method for calculating the amount of input tax that such businesses can recover can be overridden either by:

  • the standard method override - where the deductible input tax differs significantly from that calculated based on the use of input tax in making taxable supplies, or
  • requesting a partial exemption special method (PESM) if it produces a fairer reflection of the use of residual input tax than the standard method.

HMRC is encouraging businesses that use the standard method to use the standard method override, where it applies, rather than applying for a PESM.

Businesses that already have a PESM may serve a special method override notice on HMRC and these will be considered under HMRC’s accelerated process where the reason given is the impact of coronavirus.

Requests for such changes should be sent to PESMcovid19@hmrc.gov.uk.

The accelerated process is also available to businesses using a capital goods scheme special method.

The Brief also sets out the evidence that businesses should submit, and how HMRC may apply time limits and agree to retrospection.

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