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Revenue and Customs Brief 23/07


HM Revenue and Customs -Tax Authorities

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Issued March 14 2007

VAT: Partial Exemption special method approvals

This article provides further guidance on preparing and submitting the new Declaration that is required for all partial exemption special method applications that are approved on or after 1 April 2007. This article should be read in conjunction with the guidance at: HM Revenue & Customs: Changes to the VAT partial exemption special method regime (PDF 73K). Further guidance on partial exemption is in Public Notice 706.


With effect from 1 April, HMRC will only approve a special method if the business has declared it to be fair and reasonable. The Declaration requires a reasonable person to take reasonable steps to ensure the proposed method is fair. If HMRC approves a method but subsequently discovers the person signing the Declaration did not act reasonably, it could override the method and require the business to recover VAT in accordance with the principle of use. This will improve equity between businesses and lessen the risk of unfair methods enabling HMRC to offer speedier approval increasing business certainty and reducing administrative costs.

How should the Declaration be made?

The Declaration can be made by completing the template in Annex A. It should clearly identify the business, the method to which it relates, and the signatory.

When should the Declaration be made?

In most cases, the Declaration would accompany the special method proposal inviting HMRC to give approval. HMRC will review the method and unless problems are found, transpose it onto a special method letter adding standard clauses, glossary terms and routine references to ensure clarity, before returning it to the business. Provided the business is content that the method reflects its proposal, it can adopt it as agreed without further correspondence. There is no longer a requirement for the business to sign and return a copy of its finalised method, further saving administrative cost.

In some cases, the business will wish to discuss its draft special method before making a firm proposal to ensure it accords with guidance and partial exemption principles. In these cases, the Declaration should not be made until the special method has been fully developed, otherwise a new Declaration will be required before approval can be given. Similarly, if HMRC consider that a proposed method cannot be approved, despite the accompanying Declaration, it will discuss with the business giving reasons and invite a new proposal and Declaration.

Annex A

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Crown Copyright 2007.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2007-03-14 22:26:54 in Tax Articles

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