Revenue & Customs Brief 4 (2021): 'Partially exempt VAT registered businesses affected by Coronavirus (COVID-19)' outlines an accelerated process to request temporary alterations to partial exemption methods to reflect changes in business practices due to Coronavirus. 


  • Where businesses make both taxable and exempt supplies for VAT, input tax can only be recovered to the extent that it relates to making taxable supplies. 
  • Input tax which relates to both taxable and exempt supplies must be apportioned using a fair and reasonable method.
    • This method may be the 'standard method' or a 'Partial Exemption Special Method' (PESM), if this gives a fairer result and is agreed with HMRC. 
  • In some circumstances, an override can apply to the standard method or an existing PESM. 

Accelerated process

  • Where proposed changes to a Partial exemption method relate to Coronavirus, HMRC will use an accelerated process to ensure that amendments are considered promptly. 
    • Requests for such changes should be sent by email to: This email address is being protected from spambots. You need JavaScript enabled to view it.
    • PESM requests must include a declaration that the proposed method is fair and reasonable. 
  • To ensure a prompt decision under the accelerated process, HMRC will restrict enquiries to ensure that the aim of the proposal is to address Coronavirus issues. 
    • Where there is a significant risk that the remainder of the existing method produces an overall result which is not fair and reasonable, HMRC will undertake further examination. 
    • Normal scrutiny will be applied to requests where there is a risk the accelerated process is being used to increase recovery for businesses not directly affected by Coronavirus.
  • Where the nature of supplies made has changed temporarily due to Coronavirus, HMRC are likely to accept proposals based on representative income streams. 
    • Where costs have been incurred in respect of planned but delated activities, projected income supported by business plans may provide suitable evidence.
  • Businesses using the standard method are encouraged to use the standard method override (where it applies) rather than applying for a PESM.
  • For businesses using a special method, a Special Method Override Notice served by a business on HMRC will be considered under the accelerated process where the reason given is the impact of Coronavirus.
  • Any new methods approved will be subject to a time limit, the default being one year.
  • Changes to partial exemption methods are only applied retrospectively in exceptional circumstances. 
    • Coronavirus qualifies as an exceptional circumstance and therefore meets the criteria for retrospective approval. 
  • The accelerated process is available to businesses using the Capital Goods Scheme
  • Where planned supplies have been prevented due to Coronavirus, a partial exemption adjustment would usually be required to reflect refunds made to customers. 
    • HMRC will consider sympathetically requests not to make an adjustment to the value of supplies for such refunds.

Useful guides on this topic

Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?

Capital Goods Scheme
What is the VAT Capital Goods Scheme (CGS)? When do I use it? How does it work?

External link

Revenue & Customs Brief 4 (2021): partially exempt VAT registered businesses affected by Coronavirus (COVID-19)

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