PE46500 - Consideration of Partial Exemption (PE) special methods: retrospective changes to a method
Local Offices may receive from time to time applications from businesses and their advisers seeking approval to recalculate their reclaimable input tax from previous tax years on a different basis, using a different partial exemption method. With the benefit of hindsight both businesses and our assurance officers may be able to determine a more appropriate method than the one in use. However, once it has been approved, a special method is binding on both sides until either the Commissioners direct the use of a different method (from a specified current or future date) or the business requests a change of method and this is approved. Alternatively, either HMRC or the business could serve a Notice.
Requests for a retrospective change of method are not normally to be allowed, except to the extent that a method may be approved with effect from the start of the tax year in which the declaration to a written application (being the approved application) is received. Requests for retrospective changes beyond this will only be allowed in exceptional circumstances. This is usually where the Department has been at fault, the method is inoperable, or where the method of calculation does not give any result, because both the top and bottom of the calculation are zero.
It may also be where there has been an exceptional natural disaster. Examples include the foot and mouth epidemic which resulted in some farm businesses ceasing to make taxable supplies and the World Trade Centre disaster where activities were temporally transferred to UK offices.
Before allowing exceptional retrospection, permission must be obtained from Partial Exemption Policy and a TAR should be submitted giving full details of the circumstances.