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Changes to partial exemption rules

As part of an ongoing consultation process, HMRC have recently announced further changes to the partial exemption rules. These changes will come into effect for VAT periods commencing on or after 1 April 2010 and should result in a reduction in the administrative burden currently faced by many smaller businesses. The changes are optional and do not require approval from HMRC.

There are two new simplified tests to see whether a business is ‘de minimis’.  If the business passes either of these optional tests (or the existing one which remains in place) it can provisionally recover all of its input tax including that attributable to its exempt supplies.

A further change allows the de minimis tests to be carried out annually rather than quarterly as is currently the case.

Where a business is de minimis (either under the new tests or under the current de minimis tests), it can provisionally treat itself as being de minimis throughout the following VAT year. If the business then fails the test at the year end, the VAT overclaimed must then be repaid to HMRC under the annual adjustment.

HMRC have issued an Information Sheet which sets out the new rules in detail.

This is very welcome news indeed, particularly for those smaller businesses which neither have the time nor the resource to deal with the current partial exemption rules.

Jane Stacey is a VAT adviser and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Jane you can call her on 01727 869141.

 

 

 

Date: 10th March, 2010
Author: Jane Stacey

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