News - indirect

Partial exemption

HMRC have provided further guidance on preparing and submitting the new declaration that is required for all partial exemption special method applications approved on or after 1 April 2007.
With effect from 1 April 2007, HMRC will only approve a special method if the business has declared it to be fair and reasonable. The declaration requires a reasonable person to take reasonable steps to ensure the proposed method is fair. If HMRC approve a method but subsequently discover the person signing the declaration did not act reasonably, they could override the method and require the business to recover VAT in accordance with the principle of use. HMRC's stated aim is to 'improve equity between businesses and lessen the risk of unfair methods enabling HMRC to offer speedier approval increasing business certainty and reducing administrative costs'.
The declaration can be made by completing the template in annexe A of HMRC Brief 23/07. It should clearly identify the business, the method to which it relates, and the signatory.
In most cases, the declaration would accompany the special method proposal inviting HMRC to give approval. HMRC will review the method and unless problems are found, transpose it onto a special method letter adding standard clauses, glossary terms and routine references to ensure clarity, before returning it to the business. Provided the business is content that the method reflects its proposal, it can adopt it as agreed without further correspondence. There is no longer a requirement for the business to sign and return a copy of its finalised method, further saving administrative cost.
In some cases, the business will wish to discuss its draft special method before making a firm proposal to ensure it accords with guidance and partial exemption principles. In these cases, the declaration should not be made until the special method has been fully developed; otherwise a new declaration will be required before approval can be given. Similarly, if HMRC consider that a proposed method cannot be approved, despite the accompanying declaration, they will discuss it with the business giving reasons and invite a new proposal and declaration.
HMRC Brief 23/07, 14 March 2007

Categories: News , Admin