Updated VAT partial exemption notice
HMRC have issued the latest version of VAT Notice 706 entitled ‘Partial exemption’. The notice cancels and replaces the previous version of the notice that had been issued in December 2006.
A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. In essence the business has to make an apportionment between the activities using a ‘partial exemption method’ in order to calculate how much input tax is recoverable. VAT Notice 706 explains in more detail what partial exemption is, the partial exemption methods available and the calculations and input tax adjustments that must be made.
The notice has been updated to improve readibility and to reflect:
- Changes to simplify the standard method.
- Changes to simplify the de minimis rules.
- The combined business/non-business and partial exemption (PE) method.
- Changes to the Capital Goods Scheme and clawback/payback rules.