VAT – Is rounding permissable?
In an ECJ decision that was released just before the end of last year, the ECJ held that rounding up to the next whole number in a VAT partial exemption special method was not permissible. This case which was taken by Royal Bank of Scotland Group plc has important implications for many ‘partially exempt’ businesses in the UK and a win for the taxpayer would have resulted in a large number of claims by taxpayers. For example, a calculation that resulted in 6.01% recoverable VAT would have been rounded up to 7%.
The ECJ did comment in the judgement that if such rounding up was specifically allowed by HMRC in a partial exemption method then the agreement would stand until the partial exemption agreement is withdrawn or replaced. Going forward HMRC are unlikely to agree to allow any rounding up which might result in a significantly enhanced amount of VAT recovery for the taxpayer.
The standard method partial exemption calculation for businesses whose residual input tax is less than £400,000 per month remains the same and rounding to the next whole percentage is allowed in such cases.