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HMRC internal manual

VAT Government and Public Bodies

From
HM Revenue & Customs
Updated
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Section 33 bodies: capital projects and other adjustments: error in attribution

Introduction

During each year a section 33 body is required to attribute VAT incurred to

  • taxable or non-business activities
  • exempt activities, or
  • partly to both.

If in a subsequent year that original attribution proves to be wrong, the section 33 body should rework the refund calculation for the year in which the VAT was originally attributed and amend its calculation accordingly.

Adjusting the VAT

Increases in exempt input tax

Amendment to the calculation may lead to an increase in exempt input tax for a body that originally met the insignificance test for the year in question with the result that the test is breached. In that case all the exempt input tax must be repaid in accordance with Notice 700/45’ How to correct VAT errors and make adjustments or claims’ (external users can find the notice at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por…).

If, however, the exempt input tax increases for a body that had already breached the test of insignificance during the year in question, only the additional exempt input tax is required to be repaid.

Decreases in exempt input tax

Amendment to the calculation may, on the other hand, lead to a reduction in exempt input tax for a body that had originally breached the insignificance test for the year in question. The result being that it now meets the insignificance test. In that even the body can reclaim all the exempt input tax.

Where, despite the amount of exempt input tax decreasing, the body still breaches the insignificance test, only the amount by which its exempt input tax has been reduced may be reclaimed.