VAT & Partial Exemption – Ability to adjust for Covid Impact
Many clients who operate in the world of mixed taxable and exempt supplies – in property, education, health, finance sectors for example - will be familiar with Partial Exemption Methods in all their forms – whether the Turnover based Standard Method or more tailored methods creating Partial Exemption Special Methods (PESM’s) which may bring a range of sectors and apportionment methods – staff time, turnover, floor area use etc.
With the impact that COVID 19 has had on organisations across the UK it’s easy to appreciate that the fluctuations in the activities of organisations would flow directly through to these mathematical calculations and could easily distort the VAT position away from a “fair and reasonable” position as a result. Therefore, the publication of recent guidance from HMRC on the matter was to be welcomed. The full detail of their comments can be found here and whilst there are some caveats noted in the wording – HMRC “is likely” appear as a phrase for example - overall there’s a positive current to the approach they appear open to take.
The gist of the note is that HMRC are announcing “an accelerated process for VAT registered businesses to request temporary alterations to their partial exemption methods (including combined methods) to reflect changes to their business practices because of the coronavirus (COVID-19) pandemic.”
Adjustments to the Partial Exemption method may be temporary as the activities start to return to “normal” but HMRC will follow this accelerated process “to make sure coronavirus-related changes to partial exemption methods are considered, and where appropriate, approved swiftly.” There is a specific email address to which proposals should be sent: PESMcovid19@hmrc.gov.uk which will be a help as contact with HMRC currently does have its challenges.
If you’ve been affected in this way then your Partial Exemption years ending in 2020 would benefit from review as indeed will the 2021 year calculations but do note that the default position is that the change lasts for one tax year, so changes for 2020 might be agreed and you’d have to revisit an approach for the tax year to 2021. At least HMRC recognise that CV19 is an exceptional issue and thus changes to partial exemption methods can be applied retrospectively (beyond the tax year in which the proposal and supporting declaration are received).
We are working with a number of affected partially clients to identify the best approach to take in this regard and if you would welcome a conversation and support to help your organisation then do give your usual Centurion adviser a call or email us at firstname.lastname@example.org
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