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V3.462 Partial exemption—special methods

Regulations¹ made under VATA 1994, s 26(1) provide that HMRC may approve or direct² use of a method other than the standard method³ for calculating the amount of input tax which is attributable to taxable supplies⁴.

In Finanzamt Hildesheim v BLC Baumarkt, it was held that Directive 77/388/EEC, art 17(5)⁵:

'must be interpreted as allowing Member States, for the purposes of calculating the proportion of input value added tax deductible for a given operation, such as the construction of a mixed-use building, to give precedence, as the key to allocation, to an allocation key other than that based on turnover appearing in Article 19(1) of that directive, on condition that the method used guarantees a more precise determination of the said deductible proportion'.

Such a method is frequently referred to as a 'special method'. HMRC normally allows use of a special method if it provides a fair and reasonable allocation of input tax to taxable supplies⁶.

Two cases provide examples