Annual Adjustments

Organisations that generate exempt and/or non-business activities are required to perform calculations to determine the value of recoverable VAT. Typical exempt activities include rental income, care/welfare services, financial/insurance services, amongst others. Non-business activities are those which are provided free of charge – perhaps funded by way of grants or donations.

There are two methodologies required. One is known as “partial exemption” and the other “business/non-business”. It’s possible that one or both may apply, but in either case an annual adjustment is required, and this would typically be for the VAT year ending March, April or May depending on the VAT return stagger. Any VAT recovered to this point is done so on a provisional basis, with the adjustment acting as a final ‘true up’.

The good news is that the adjustments can either be made on the final VAT return for the year, or as is more common, on the following return (June/July/August). However whichever is chosen, it is an important process and it would be worth diarising now. We’d be happy to offer guidance or support on this process and are willing to undertake a review and perform the calculations where appropriate.