PE62750 - Other Partial Exemption issues: credit notes

Credit note values in Partial Exemption calculations

Regulation 38, (SI 1995/2518) deals with credit note adjustments. This note applies only where credit note values are included in partial exemption calculations.

Credit notes received

Where a business receives a credit note:

a. in the same tax period as the original supply - the return should be submitted on the basis of the adjusted input tax taking into account both the credit note and the original invoice.

b. in a subsequent tax period but in the same tax year - no adjustment is due in the subsequent tax period. However, when the longer period adjustment is carried out, the amended input tax value should be used.

c. in a subsequent tax period not in the same tax year - the longer period adjustment covering the original tax period should be revisited. The business must consider what effect the revised value has on that longer period adjustment, producing revised values for input tax and reconsidering the de minimis status. The resulting amendment should be included in the tax period covering the date of the credit note as an adjustment outside the partial exemption calculations.

Credit notes issued

Where a business issues a credit note:

a. in the same tax period as the original supply - the amended value should be used in any partial exemption calculation used to determine the recoverable proportion of non-attributable input tax.

b. in a subsequent tax period but in the same tax year - no adjustment is necessary in the subsequent tax period. When the business performs the longer period adjustment, the amended value should be substituted for as the value in the partial exemption calculations; the resultant exempt input tax should be tested against the de minimis limits.

c. in a subsequent tax period but not in the same tax year - the longer period adjustment covering the original output should be revisited, introducing the revised values into the calculation and reconsidering the de minimis status. Any resulting adjustment is proper to the tax period covering the date of the credit note as an adjustment outside the partial exemption calculation.