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HMRC internal manual

VAT Partial Exemption Guidance

From
HM Revenue & Customs
Updated
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Partial Exemption methods: longer period adjustment: alternative tax years

Under regulation 99(1)(d) the Commissioners have powers to vary the length and period of a tax year.

These powers are mostly exercised where businesses ask to change their stagger in order to bring their tax year-end into line with the end of their financial year. Businesses can also change their tax year end within their existing stagger, e.g. a business on stagger 1 with a normal 31 March tax year end may ask to change to a 31 December tax year end to coincide with its financial year end.

Unless there is evidence that the request for change is intended to minimise the effect of a liability change, bring forward the application of more favourable de minimis limits or result in an unfair recovery of input tax (for example, due to the timing of the annual adjustment), then such requests can be approved locally. Application and approval should always be in writing.

Where a business is on an approved partial exemption special method, approval of the business’s existing tax year (and the timing of the annual adjustment calculation) will normally be contained within that special method approval letter.

It is important to remember that the approval of a change of partial exemption special method under regulation 102(1) and the approval of a change in tax year under regulation 99(1)(d) are separate matters. If you are approving a change in a partial exemption special method, but not a change in a tax year, the approval letter should make clear that approval for the existing tax year continues.

If you are withdrawing an approved partial exemption special method (NB such a withdrawal requires Partial Exemption Team agreement), but are happy for the business’s tax year to remain the same, your withdrawal letter should make clear that approval for the existing tax year (and thus the timing of their annual adjustment calculations) remains the same.

If you are approving the change of tax year for a business on a partial exemption special method, this will affect the timing of that business’s annual adjustment. In approving the change of tax year under regulation 99(1)(d), you will also need to issue an amendment to the existing partial exemption special method approval letter setting out details of the revised timing of the annual adjustment calculation. Please note that this does not require the business to submit a ‘declaration’. You should also advise the business of the procedure for dealing with transitional adjustments from the old tax year to the new.