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HMRC internal manual

VAT Partial Exemption Guidance

Consideration of Partial Exemption (PE) special methods: requests for changes to special methods

Businesses will often request amendments to their approved special methods. These may be necessary for a number of reasons; most often changes to the business activities. Officers should however be aware that any such request is in fact a request for a new special method. The approval of such an amendment is the approval of a new special method. The implication of such approval is that the Commissioners believe that the method as a whole reflects the use of input tax by the business and gives a fair and reasonable result. A Declaration will also be required in these circumstances (see PE43000).

The Tribunal decision in the case concerning The University Court of the University of Glasgow (VTD 17744) demonstrates this point. The University submitted proposals to amend their special method by isolating a sports facility “Garscube” and applying alternative apportionment calculations to it. The Commissioners considered that all the University’s sports facilities needed to be addressed and refused the proposals, but invited further proposals taking into account the activities of the University as a whole. The University appealed this decision and the Tribunal considered whether the decision was reasonable.

In looking at the provision of sporting facilities by the University as a sector of its activities, the Tribunal decided that it was:

“…neither fair nor reasonable to ‘cherry pick’ Garscube as being the place where input tax recovery might be made to obtain that benefit while ignoring the University’s general activities within the sector…”

In conclusion, the Tribunal said that it is unreasonable to suggest that a specific area of a special method can be addressed without consideration of the appropriateness of the special method as a whole. The Commissioners were therefore justified in refusing to consider the changes requested in isolation from the rest of the method.

A refusal to approve a change in a special method may mean that input tax incurred by the business is not dealt with specifically by the existing method and that a gap occurs (see PE48000 - ‘Gaps’ in special methods.