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3rd April 2024

Partner insight: A closing door on a VAT refund opportunity

Chamber Partners Xeinadin Indirect Tax (formerly Centurion VAT) are alerting Chamber members and businesses to a closing door for a VAT reclaim for businesses and not-for-profit bodies adversely affected by a drop in their taxable income levels during the pandemic.

In March 2021, the government issued the Revenue and Customs brief 4 (2021). This laid down a framework for partially exempt businesses affected by Covid, accelerating the process for VAT registered businesses to request temporary alterations to their partial exemption methods to reflect changes to their business practices.

The method

The framework set out by the brief allows businesses to temporarily apply to use a Partial Exemption Special Method (PESM). The method takes the input VAT recovery ratio from a year not impacted by Covid and applies it to the years that were impacted. By applying this ratio, businesses are able to claim a partial refund of the input VAT paid over to HMRC.

All PESM requests must be accompanied by a declaration and satisfy requirements that the request is intended to address issues caused by Covid.

The affected businesses

The PESM is relevant to any VAT registered organisation which has a mix of taxable and exempt business activities or taxable/exempt and non-business activities. This can include charities, colleges and universities, as well as financial, property, welfare and sports services businesses. Eligible businesses will have a mix of these income types and will have seen the level of taxable income fall as a result of the restrictions put in place due to the pandemic.

The closing door

The first UK lockdown began in March 2020, meaning that it has been four years since businesses began to lose taxable income as a result of having to close down their activities. As the statute of limitations for VAT is four years, businesses that have not yet applied to use a PESM will soon start to lose the ability to make an adjustment to the periods first affected by the pandemic.

The PESM is particularly important for businesses that have exempt income and provide taxable facilities such as room hire, bar takings and catering services, but is also important for partially exempt businesses that saw their recovery suffer during the pandemic. As the window in which to make a claim and potentially receive a refund, it is worth speaking with experts such as the team at Xeinadin Indirect Tax to discuss your options.

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