VBNB34000 - VAT Business and Non-Business: Principles: Agreeing an Apportionment Method

Businesses do not have to get HMRC’s approval for apportionment, however where businesses do ask for approval, HMRC will consider whether:

• The result is fair and reasonable because the indicator of non-business activity on which the method is based gives a fair reflection of the balance between business and non-business activities.
• The indicator on which the method is based will reflect changes in the proportionate extent of the business and non-business activities.
• The method can be easily applied by the business and audited by HMRC or is instead overcomplicated and prone to error.

Approval will normally be given if:

• HMRC is satisfied that the method is soundly based.
• the business does not make exempt supplies.

The method will be approved on the basis of the current levels and profile of business and non-business activities. The method may no longer give an accurate apportionment if either of these change to a material extent.

Combined BNB/PE Method

From 1 January 2011, if a business has non-business activities and makes both taxable and exempt supplies, it may request to use a combined business/non-business and partial exemption method.

A business should not combine a business/non-business and partial exemption calculation unless it has written approval for such a method from HMRC (see PE Partial Exemption PE30000 and VBNB33000 for more information).