HMRC published Call for evidence: simplification of partial exemption and the Capital Goods Scheme in July 2019.

The first part of HMRC’s enquiry considers the Partial Exemption Special Methods (PESM). At present a business proposing to adopt its own PESM must clear it with HMRC first. This can lead to delay and dispute.

The partial exemption de minimis limit has to be considered every time a partially exempt trader prepares a VAT return, normally by working through whether Test 1 or Test 2 apply. Would it be better to set a higher de minimis, or maybe, as in Germany, remove it all together?

The Capital Goods Scheme (CGS) applies to specific assets acquired by a partially exempt trader and input VAT recovery on purchase depends on exempt and non-business use.  The value set on land and property has not been raised from £250,000 since the scheme was introduced in 1990. Does anyone adjust for computers? CGS calculations can be notoriously complex. What can be done to improve the CGS?

Other suggestions

Making Tax Digital has the potential to streamline the operation of both PE and the CGS.  HMRC would also like to know if there are methods used in other countries that could benefit UK businesses if adopted here and welcomes any other suggestions to aid simplification of PE and the CGS to ensure that UK businesses operate in the best possible environment

Summary of call for evidence questions

Partial Exemption Special Methods

  1. Does your business use a PESM? If so, what was your experience in getting the PESM approved?
  2. How long did the approval process take?
  3. Do you find the administration involved with PESMs challenging?
  4. Would allowing businesses to apply PESMs without seeking approval improve the system? Please give reasons for your answer.
  5. Would there be issues created by removing the requirement to seek approval of a PESM?
  6. Would an increased focus on the use of sectoral frameworks be of benefit, particularly if approvals were removed?
  7. Do you have other suggestions to improve or simplify the application of the PE regime?
  8. Do you have other suggestions on how the way in which HMRC interacts with partly exempt businesses could be improved? Increasing the de minimis limit
  9. What is your experience of carrying out the de minimis test?
  10. What would the advantages and disadvantages of increasing the de minimis threshold be to business?
  11. Are you aware of the existing simplification, and do you make use of it? Removal of the de minimis limit
  12. What would be the advantages and disadvantages of removing the de minimis test?
  13. Do you have other suggestions to improve or simplify the application of the de minimis regime?
  14. Do you have any suggestions on how to determine what can be considered as ‘insignificant’ that would be different to the current de minimis tests?


CGS Thresholds 

  1. What is your experience of the CGS?
  2. How much time and resource do you allocate to carrying out CGS calculations? Does this have an impact on your business?
  3. To what extent does the CGS help to prevent cases of tax avoidance and unfair competition?
  4. What would be the advantages and disadvantages of increasing the threshold for land and property businesses?
  5. Would there be any other issues involved with increasing the land and property threshold?
  6. If the threshold for land and property is increased, do you think we should consider having a different threshold for alterations, extensions, annexes and refurbishments, (i.e. retain the current threshold) or would it increase complexity?
  7. Are there other ways in which the CGS can be improved?

Categories

  1. Do you have experience of computers being included in the CGS?
  2. Would removing computers from the CGS be a simplification for business?

Intervals

  1. What do you think of the current interval length?
  2. Would a change in the number of intervals help businesses with their administration of VAT? Why?

Other possible areas to review

  1. Do you have other suggestions to improve and simplify the application of the PE and CGS regime?
  2. Do you have any experience of the operation of PE and the CGS in other countries? How does the UK compare?
  3. Do you have any other comments?
  4. Responses by 26 September 2019, by email to: This email address is being protected from spambots. You need JavaScript enabled to view it. 

Our useful VAT guides on this topic

Partial Exemption

Mixed supplies

Capital Goods Scheme

Making Tax Digital for VAT

External links

HMRC Call for evidence: simplification of partial exemption and the Capital Goods Scheme

 

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