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HMRC internal manual

VAT Partial Exemption Guidance

Partial Exemption powers: special method override notice: termination of a notice

A Notice expires when a new special method is either approved or directed, or HMRC allow or compel the business to use the standard method. Technically, the Notice ends when the existing special method is “terminated” - by approval or direction. In practice, this is likely to be when a replacement special method is approved.

This also means that approval of an “amendment” to an existing special method will automatically terminate a Notice. You must take care not to let this happen inadvertently. This could be a risk, for example, where a business encloses a special method proposal when he serves a Notice; when approving the Notice (if appropriate) make clear that you are not approving the special method (though emphasise that you will consider the proposals).

It sometimes happens during negotiations that a variation to the existing method is proposed and is acceptable, although negotiation of the whole method is continuing - for example, where a new business activity requires a new sector in the method. Because any approval of a new special method will bring the override in force to an end, any such urgent variations should be dealt with by the business as part of its Notice correction, deducting an appropriate amount of input tax. Even in these circumstances, approval should not be given until HMRC are ready to approve the whole method.

In practice HMRC should do whatever they can to assist in putting a replacement special method in place as soon as is practicable, so that if a Notice remains in force for a long time it is not the fault of HMRC.

When a suitable replacement special method is ready

One of HMRC’s primary objectives in serving a Notice is to reach agreement over a special method that is fair and reasonable. When negotiations have produced such a method it should therefore be approved. The Special Methods Unit must always be consulted before any method is approved when they have been involved in the case, however.

Except where the business has appealed against either the service of the notice or any assessments of tax in periods that would be re-calculated under the new method, the guidance at PE46500 - Retrospective changes to a method - should be followed regarding the start date of the new method.