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HMRC internal manual

VAT Partial Exemption Guidance

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HM Revenue & Customs
Updated
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Partial Exemption methods: simplifcations to the standard method: early annual adjustment

 
 
 
 

A business has the option to bring forward its annual adjustment calculation to the last VAT return of its tax year.

Example: A business has a partial exemption tax year ending 30 June 2009 and would normally account for its annual adjustment in its return for the period ending 30 September 2009. Under the new rules the business may account for its annual adjustment calculation in its return for the period ending 30 June 2009.

Is the early annual adjustment compulsory?

No, it is optional for a business to bring forward its annual adjustment calculation and there is no need to notify HMRC. The default position is that a business accounts for its annual adjustment in its first VAT return following the end of its tax year.

How will HMRC keep track?

This will be evident from whether the business has accounted for its annual adjustment in its first VAT return following the end of its tax year (the default position) or has opted to bring it forward to the last return of the tax year. However, once the due date for the final VAT return of the tax year has passed, the business is required to account for its adjustment in the first return following the end of its tax year as this is the default position.

What were the old rules?

The old rules (prior to 1 April 2009) required a business to account for its annual adjustment in the first VAT return following the end of its tax year (unless HMRC had approved the use of another period). This was to give businesses time to gather information and to help ease pressure at year-end when accounts were being prepared. But the delay meant that the year was not closed immediately and that a typical business carried out five rather than four calculations each year.