VAT partial exemption check and fee protection scheme


New VAT powers and penalty rules make the annual “partial exemption” calculation even more important this year because any “careless” errors will carry a minimum 15 per cent fine if not disclosed beforehand to HM Revenue and Customs (HMRC).


For the VAT return year ended 31/3, 30/4, or 31/5 dispensing practices need to ensure they can show all VAT paid as being directly allocated whenever possible between VAT exempt healthcare income and vatable other income at either the zero, reduced or standard rate.


VAT paid on overheads (e.g. telephones) is then allocated pro rata to the above income.


If VAT paid allocated directly to exempt income (plus VAT paid on overheads allocated pro rata to exempt income) is less than £7500 and less than 50 per cent of all VAT paid then all VAT paid is recoverable.


There are many ways to allocate the above VAT to try to ensure all VAT paid is recoverable and please do get in touch with Stephen Adams, associate tax principal, if you wish to discuss any points in further detail.


And finally – don’t forget you can easily mitigate against the cost of almost all HMRC investigations (including personal tax returns) from day one by signing up to a fee protection scheme. Large costs can easily arise – especially in relation to eliminating the new fines for “careless” behaviour. Moore and Smalley clients all get the opportunity to sign up to our Taxsafe scheme.