HM Revenue and Customs Brief 29/08
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Issued 19 June 2008
VAT: partial exemption – launch of consultation
This Revenue and Customs Brief article announces the launch of a consultation
on ideas to simplify the VAT partial exemption rules to reduce compliance costs
for businesses. The consultation invites comments and suggestions on the three
partial exemption areas identified as simplification priorities by businesses:
- standard method
- de minimis rules
- Capital Goods Scheme (CGS)
It also invites comments on possibly combining partial exemption and
business/non-business calculations.
Partly exempt businesses and their representatives are encouraged to
participate to help cut compliance costs. Further information on partial
exemption is available in Public Notice 706 Partial Exemption.
Background
VAT on costs relating to taxable supplies is recoverable, whereas VAT
relating to exempt supplies is normally irrecoverable. A business that incurs
VAT on costs relating to taxable and exempt supplies is partly exempt and must
apply the partial exemption rules to calculate how much VAT it can recover.
There are around 140,000 partly exempt businesses including financial service
providers, property companies, educational organisations, charities, gaming
operators and undertakers. Around 120,000 of these, mainly smaller-sized
businesses, operate the standard method, which is a simple turnover-based
calculation set out in law.
Around 100,000 small partly exempt businesses benefit from being able to recover
VAT relating to exempt supplies that is deemed insignificant under the de
minimis rules. This is meant to relieve small businesses of the burden of
restricting VAT relating to exempt supplies.
Some expenditure on capital items, mainly relating to land and buildings, falls
within the CGS. This requires businesses to review the extent to which capital
items are used in making taxable supplies for a period of up to ten years,
making adjustments to previously recovered VAT where necessary. Most large
businesses incur expenditure on capital items.
Consultation
The consultation was launched on 19 June with publication of the consultation
document on the HMRC website. Businesses and representative bodies are invited
to suggest ways to simplify partial exemption and comment on a number of ideas
for simplification. Responses from smaller-sized businesses and their
representatives that regularly perform partial exemption calculations are
particularly encouraged as they are likely to be affected most and have most to
contribute. With this in mind, technical and legal content has been kept to a
minimum. The consultation will end on 30 September 2008.
Further information
If you have any queries please contact Patrick Wilson on 020 7147 0595 or by
email Patrick Wilson.
© Crown Copyright 2008.
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