Convenient method

Residual VAT on overheads

The taxpayer claimed a repayment of residual input tax on the proportion of overheads incurred by the college’s academic departments. A dispute arose concerning the basis on which the net VAT originally paid for the relevant years was calculated.

The college said the calculations of recoverable VAT were made under a partial exemption special method (PESM) agreed with HMRC. The Revenue said they were a compromise of claims made by the college in respect of specific accounting periods.

The First-tier Tribunal preferred the taxpayer’s argument. HMRC appealed.

The Upper Tribunal said the agreed method was a single formula which combined attribution of input VAT between business and non-business activity with input tax between taxable and exempt supplies. It did so in a ‘convenient and pragmatic’ way and had been agreed as a PESM. Further HMRC had the authority to approve it under the VAT Regulations...