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HMRC internal manual

VAT Partial Exemption Guidance

Partial Exemption powers: overview of Partial Exemption powers

There are two partial exemption powers which can override a businesses agreed partial exemption method. These are the power of direction and notice. Further information can be found in PE51000.

By preference HMRC would rather agree a method with a business rather than using a power. If agreement is not possible use of a power should be considered. Where a power is appropriate HMRC’s preference is to direct a new method as if provides more certainty and generally gives a lower compliance burden than a notice. Where there are timing issues or HMRC does not have a sufficient understanding of the business’s use of costs or its accounting procedures a notice is appropriate.