PE63250 - Other Partial Exemption issues: belated claims for input tax
Where a partly exempt business is allowed a belated input tax claim, input tax may only be recoverable to the extent that it would have been recoverable had it been claimed in the tax period or periods in which it was incurred. If the de minimis limits have changed since the tax was incurred, the business must work out the recoverable input tax using the exact rules that were in force when the tax was originally incurred.
When making such a claim, the business should consider the knock on-effect on other input tax deducted in that period and the relevant longer period calculation. For example, if a business is using an inputs based method, then a revision to either the taxable or total input tax values will alter the amount of residual input tax deductible. The business will also have to reconsider the de minimis position for the initial tax period and longer period in the light of the revised values for exempt input tax following his amended calculation.
Any resulting claim due is proper to the tax period covering the time that a claim is made, even though the amount allowed is dependent upon the tax period covering the tax point of the supply in question. Any such claim is outside the partial exemption calculations and de minimis limits for the tax period when the claim is actually made.
Belated claims (whether made via a voluntary disclosure or any other means) may only be based on the partial exemption method in place at the time the input tax was incurred. Some advisers seek to use different methods when they make belated claims, often without disclosing the fact. The ‘new’ method may be preferred because it gives a better recovery, or because it requires less work to calculate. Great care must therefore be taken in handling such claims.
The procedure to adopt when considering such claims is to check that the partial exemption method used in the claim is that in place when the input tax was incurred. If it is not, refuse the claim and invite the business to use the correct basis.
Some claims are submitted claiming that there is a gap in the current method. In these circumstances, refer to PE48000 - ‘Gaps’ in special methods. It should also be borne in mind that the standard method has changed several times since 1973. For a history of the changes, see PE80500 - History of the standard method.