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HMRC are set to change their VAT policy regarding floor space partial exemption special methods.
The move follows the Upper Tribunal’s decision in CRC v Lok’nStore Group plc, which dismissed a Revenue appeal on the grounds the First-tier Tribunal was entitled to conclude that the method used by the taxpayer for calculating deductible VAT on overheads produced a more fair and reasonable result than the standard technique.
HMRC are set to change their VAT policy regarding floor space partial exemption special methods.
The move follows the Upper Tribunal’s decision in CRC v Lok’nStore Group plc, which dismissed a Revenue appeal on the grounds the First-tier Tribunal was entitled to conclude that the method used by the taxpayer for calculating deductible VAT on overheads produced a more fair and reasonable result than the standard technique.
The revised approach to floor space partial exemption special methods – covered in Revenue & Customs Brief 24/14 – will be made on the basis the tax department does not agree that floor space methods are usually appropriate for the retail sector.
HMRC say businesses wishing to apply for a new or amended partial exemption special method similar to that in Lok’nStore will need to demonstrate that overhead costs are not cost components of their exempt supplies, and that they do not intend to recover the costs through their exempt outputs.
