PE47000 - Consideration of Partial Exemption (PE) special methods: backdating approval
Whilst retrospective changes of method will only be approved in exceptional circumstances, the retrospective approval of a method may be granted where a partly exempt business has failed to adopt any method to apportion input tax. This usually occurs where the taxpayer did not realise that he was partly exempt. By default, the business must use the standard method (as adjusted by the override if appropriate) and the assurance officer should calculate any over recovery of input tax, subject to the relevant time limits, de minimis rules, and the override; and may assess.
However, if the standard method does not give a fair and reasonable result and the business proposes a special method that does, the officer may approve such a method as the basis of the calculation of exempt input tax. If this happens the Commissioners are retrospectively approving the use of a special method. This policy has been adopted in acknowledgement of the fact that the business was not in a position to propose an alternative method at an earlier point in time, since they were unaware that such a calculation should have been undertaken.
Backdated approval may also be granted where a business has been unknowingly operating an unapproved special method, but where that method gives a fair and reasonable result. In this case a ‘Declaration’ will still be required.
Please note that an amendment to an existing method must be treated as an application for a new method and the retrospection rules above will apply. For example, if a taxpayer seeks to change its method e.g. by the creation of a new sector that the taxpayer didn’t realise it would need at the time the activity began this is an application for a retrospective change to an existing method and should be dealt with by reference to the guidance at PE46500