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Partial Exemption: Reminder VAT year end requirements

15th April 2015

The VAT year end for many businesses has either ended in March or is due to end in April or May.

There are two potential adjustments required at the year end for all partly exempt businesses, these are as follows:

  1. Annual adjustments – Many businesses simply fail to carry out an annual adjustment each VAT year or carry out the calculations for the adjustments incorrectly. The correct application of an annual adjustment can often improve your VAT recovery position. 
  2. Capital Goods Scheme adjustments – An annual adjustment is required for all VAT that has been reclaimed on capital assets. For VAT purposes capital assets include commercial property (purchase and/or refurbishment) costing over £250,000 and computer hardware costing over £50,000. 

Improve your VAT recovery
In addition, the VAT year-end gives you an opportunity to review your VAT recovery position. Often businesses will forget about the de-minimis limit which allows full VAT recovery where the exempt input VAT is below certain limits, this applies to the annual adjustment as well. Many businesses fail to review this when the annual adjustment is calculated and could be losing out on VAT recovery.

It may also be possible to improve the VAT recovery position by considering the use of a different partial exemption method. Even if you have agreed a special method with HMRC, it can often be worth reviewing the application of the method and whether it is still fair and reasonable for the business, as often the method will have been agreed with HMRC some time ago after which business operations may have changed.

What now?
We would recommend that your partial exemption position is reviewed on an annual basis to ensure you are carrying out the necessary requirements correctly and are maximising your potential VAT recovery.

Our VAT team are experts in this area and can help you with your partial exemption requirements and establishing whether any improvements can be made to your VAT position. We would be pleased to arrange a free initial call with you to discuss any concerns you have in respect of your partial exemption position.

If you would like to discuss any of these issues further, please contact Kamlesh Chauhan.

VAT Manager
Tel: +44 20 7969 5584