VAT Partial exemption  is a measure which links vat reclaimable on outgoings to the amount of vat charged on  income. It affects many types businesses, especially those in the health and not for profit sector. The problem is the the proportion  is infernally difficult to work out  and involves creating elaborate spreadsheets to keep track of what usually comes down to a minor adjustment to the final figure.

Its calculation is time consuming, and full of "grey areas" so that  no one really understands it, least of all the inspectors who's job it is to monitor  its operation. Tax lost to HMRC by scrapping, I suggest is very small. 

Why is this idea important?

Although HMRC has made efforts to simplify life for the small business, VAT and Payroll remain a perennial nightmare. This is  not because you don't want to pay what is due  but because the  complexity of the regulations make diffcult to get it right.  Partial exemption is just one of a series of areas where the rules are not clearcut  and the fear is that at some stage an inspector wanting to make his or her name can descend upon you with  complex examinations and claims for back- tax  which, as a small business, you have not the resources to contest.

Scrapping this particular measure would be an unsung triumph, but, in terms of saving energy for the real job  of generating taxable profit,  very worthwhile. I commend it to the Chancellor.    

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