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HMRC internal manual

VAT Partial Exemption Guidance

Consideration of Partial Exemption special methods: the declaration: enquiries and discussions

Because the Declaration encourages businesses to propose fair and reasonable methods from the outset, this allows HMRC to adopt a more risk-based approach in approving methods. It is for PE specialists to judge the level of risk associated with a proposed method which is dependent on a number of factors including the sector in which the business operates, the amount of residual input tax at stake and its future plans.

Where a proposal is unambiguous and judged to be low risk, checks may be limited to simply examining correspondence and visit reports already held on file and would not normally require further enquiries of the business.

However, it is important to remember that irrespective of the Declaration, a method must never be approved if suspected to be unfair and officers should not feel pressured into approving methods if they have good reason for making further enquiries.

HMRC actively encourage businesses to discuss their proposed method, to highlight concerns and to explain why it is considered fair and reasonable. Doing so helps ensure speedy approval and enables Policy Team to identify generic issues for which improved guidance or policy clarification is needed. Furthermore, in the event that HMRC refuses approval, they can offer comprehensive reasons so as to help the business prepare an alternative proposal.