- Overview of Partial Exemption Guidance: The HMRC’s VAT Notice 706 provides detailed guidance on partial exemption, which applies to businesses making both taxable and exempt supplies. It outlines the methods for calculating the recoverable input tax, including the standard method, special methods, and the de minimis rule, as well as procedures for claiming input tax and handling adjustments.
- Calculation Methods and Adjustments: Businesses must follow specific steps to calculate recoverable input tax: direct attribution of input tax to taxable supplies, apportionment of residual input tax, and annual adjustments based on the actual use of goods and services. The guidance emphasizes the importance of maintaining accurate records and making necessary adjustments when business circumstances change.
- Special Methods and Compliance: Businesses can apply for special methods tailored to their unique circumstances, but these require prior approval from HMRC. The guidance stresses that any proposed method must fairly reflect the use of input tax in making taxable supplies. It also includes provisions for handling changes in business use, the implications of group registrations, and the processes for applying for and reporting adjustments.
Source gov.uk
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