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HMRC internal manual

VAT Partial Exemption Guidance

Partial Exemption powers: special method override notice: appeals to the VAT and duties Tribunals

Where the business has appealed against the service of a notice or against assessments of tax when they have failed to make Notice corrections, agreement to backdate the new method to the start of the current PE year could result in HMRC having to pay the business’s costs of the appeal to the Tribunal. We should therefore make any agreement to backdate subject to each party bearing its own costs, the terms of the agreement being drawn up in the form of a Section 85 Agreement (see Section 85 of the VAT Act 1994) where considered necessary. The Solicitor’s Office will provide any assistance should this be required.

When the business refuses to settle the dispute on this basis, the new method should only be approved from a current or future date. These circumstances override HMRC’s normal policy as set out in PE46500 - Retrospective changes to a method.