Modular VAT reviewtax pyramid

Any business that makes taxable supplies (those subject to the standard, reduced or zero rate of VAT) and VAT exempt supplies will be partially exempt. This means that partial exemption calculations and an associated annual adjustment must be done.

These calculations require expenditure to be linked, as far as possible, to the supplies made by the business. Costs that cannot be ‘directly attributed’ fall into a residual ‘pot’, a proportion of which can be reclaimed.

It is not uncommon for businesses to lump costs into the residual pot that could and should be directly attributed. This is often a cause of errors and lost opportunity.

The standard method used for the partial exemption calculation is based on the supplies made by the business. It is possible to negotiate a special method with HMRC which can produce a more favourable result than the standard method. Any deviation from the standard method is a special method and must be agreed with HMRC.

As a partially exempt business evolves the suitability of its method will change. Using an old method without periodic review presents a real risk of errors and increased VAT cost to the business.

We can ensure that your partial exemption method is being operated correctly and can consider whether a special method could enhance your VAT recovery position.

  • Follows/compliments expenditure especially non-business
  • Attribution of expenditure
  • Operation of current method
  • Current method vs Standard method or PESM as applicable
  • Other efficiencies within the existing method – eg. Disbursements as opposed to VAT exempt income?

By adopting a modular approach to your VAT review you are able to take control so you can:

  • focus on the specific areas of risk
  • address your VAT concerns
  • manage/spread the cost of the review
  • control the timing of each module so you can prioritise key modules and schedule the progress of the review to fit in with your business

Next steps

Get in touch today to discuss how we can work with you to keep VAT becoming a headache for your business. Our modular VAT review is comprised of the following elements which you can pick and mix over an agreed period of time. The only mandatory element is module one which is the initial scoping element.


Call us on 0115 778 8533 for a free consultation.