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HMRC internal manual

VAT Partial Exemption Guidance

Partial Exemption powers: special method override notice: introduction and law

This measure was introduced with effect from 01 January 2004. It was announced by Business Brief 27/03. Amendments to our policy on the use of this power were announced by Business Brief 7/05 and were effective from 01 April 2005. Use of this power was further extended from 01 April 2007 with the introduction of the special method ‘declaration’ (See PE43000 - The Declaration - for further information).

The Special Method Override Notice (Notice) only affects partly exempt businesses that operate a partial exemption special method and where HMRC have:

  • served a Notice on the business; or
  • approved a Notice served by the business.

No other businesses are affected by this measure.

A Notice allows HMRC or the business to impose an immediate override on the results of an unfair special method until a replacement method is implemented. A special method is unfair when the result it gives is not a fair and reasonable reflection of the use of goods and services in making taxable supplies.

The Law

The legal provisions for the Notice can be found in regulations 102A, 102B and 102C of the VAT regulations 1995 (SI 1995/2518) as amended by the VAT (Amendment) (No 6) Regulations 2003 (SI 2003/3220). These are reproduced below at PE51900 - The Special Method Override Notice regulations.