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Irrecoverable VAT on Fixed Assets

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Our VAT returns are quarterly, each quarter i follow a partial exemption process to calculate the standard method % i can claim. This is usually 8,9 or 10%.  

I have now completed a Annual partial exemption check and our standard method is 9%.

Throughout the financial year i have used 10% from the previous financial year to work out the value of the fixed assets.

I will use 9% as my standard method going forward in the new financial year, do i need to make adjustments to the fixed assets for the previous financial year, now based on 9% rather than 10%?


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25th Jun 2019 18:50


Why would you do that ? Are you going to send the extra 1% to HMRC ? If not, how will you account for it ?

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to lionofludesch
25th Jun 2019 20:38

But surely an adjustment is required. If the Annual Adjustment calculation reveals that too much input VAT has been claimed the deficit needs to be paid to HMRC.

Depending on the amounts involved, the simple treatment is to add it to the irrecoverable VAT account in the P&L but if significant the appropriate treatment may be to adjust the cost of fixed assets.

I assume that the assets do not fall within Capital Goods Scheme.

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to Wilson Philips
25th Jun 2019 22:21

You're obviously interpreting the OP differently to me.

I'm reading it as an intention to adjust last year's Fixed Asset costs. But I don't see any obligation to repay any VAT as last year's recovery rate is now fixed.

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to lionofludesch
25th Jun 2019 22:54

Obviously a difference in interpretation. If he was recovering input tax each quarter at 10%, but the annual calculation gives a recovery rate of only 9%, why wouldn’t he have to make the adjustment under normal partial exemption rules?

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25th Jun 2019 23:31

I’m with Wilson on this one.

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By shosk
02nd Jul 2019 14:41

The amount owed to HMRC will be correct, as when i complete the Annual Adjustment the difference will be claimed/paid in the first VAT return of the next financial year. I am just querying whether i should make a Journal adjustment between the Fixed Asset Values & Irrecoverable VAT for the year that i have completed the annual adjustment for?

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