HMRC’s latest Business Brief offers help for businesses that make both VATable and exempt supplies, and have been affected by the pandemic. What’s the full story?

Business Brief

The purpose of HMRC’s Revenue and Customs Brief 4 (2021) is to help partially exempt businesses whose VAT reclaims have been adversely affected by coronavirus, whether they use the standard or a special method of calculation.

Standard and special methods

Businesses that make both exempt and VATable supplies can only reclaim VAT on costs that relate to their VATable sales. For VAT on costs relating to both VATable and exempt supplies, e.g. overheads such as rent, they can only reclaim a proportion of the VAT. The standard method for working out the proportion is to compare the value of VATable sales with total sales. But a business can use a special method of their own to increase the amount of VAT they recover, as long as it gives a fair and reasonable result.


Many partially exempt businesses took a hit on sales as a result of coronavirus. This may have skewed the proportion of exempt and VATable sales so the method they use to work out the recoverable VAT no longer gives a fair and reasonable result.

Speedier changes

Businesses can, and in some cases must, change their partial exemption method if it stops being fair and reasonable. Changing methods usually takes time and stacks of paperwork during which a business might be losing out on VAT claims. Tip. HMRC is providing an accelerated process to approve applications for changes to partial exemption methods. Plus it will allow the change to be applied retrospectively from the point at which sales were affected by coronavirus. Details of how to apply are in the Business Brief .

If your business has been adversely affected by coronavirus and is VAT partially exempt, you can apply to HMRC for accelerated approval of a change to the method you use to work out how much VAT you can recover.

The next step

Revenue and Customs Brief 4 (2021)

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