HMRC have launched a consultation on ideas to simplify the VAT partial exemption rules to reduce compliance costs for businesses.
The document invites comments and suggestions on the three partial exemption areas identified as simplification priorities by businesses:
- Standard method
- De minimis rules
- Capital goods scheme (CGS).
It also ask for thoughts on possibly combining partial exemption and business/non-business calculations.
There are about 140,000 partly exempt businesses and around 120,000 of these, mainly smaller-sized businesses, operate the standard method, which is a simple turnover-based calculation set out in law.
Around 100,000 small partly exempt businesses are able to recover VAT relating to exempt supplies that is deemed insignificant under the de minimis rules. This is meant to relieve small businesses of the burden of restricting VAT relating to exempt supplies.
Some expenditure on capital items, mainly relating to land and buildings, falls within the capital goods scheme. This requires businesses to review the extent to which capital items are used in making taxable supplies for a period of up to ten years, making adjustments to previously recovered VAT where necessary. Most large businesses incur expenditure on capital items.
Businesses and representative bodies are invited to suggest ways to simplify partial exemption and comment on a number of ideas for simplification.
HMRC are particularly keen to hear from smaller-sized businesses and their representatives that regularly perform partial exemption calculations.
Comments should be sent to Patrick Wilson by 30 September 2008, either by email: patrick.wilson@hmrc.gsi.gov.uk, or by post: Partial Exemption Policy, HMRC, Room 3/42, 100 Parliament Street, London SW1A 2BQ
