Islamic products: partial exemption
It is anticipated that adjustments may be needed to partial exemption methods to ensure that they achieve a fair and reasonable result. Businesses that provide Islamic products should therefore review their methods and, if necessary, contact HMRC to discuss a new fair and reasonable method going forward. Further guidance is available in VAT Notice 706 Partial exemption.
Businesses using the standard method may need to make adjustments under the standard method override, which came into effect on 18th April 2002. The override requires businesses to make an adjustment to their partial exemption calculations where the input tax deducted during the tax year differs substantially from a deduction based on use. If override adjustments are required on a regular basis then the business should certainly contact HMRC to discuss a new method going forward.