VAT refund opportunity for partially exempt organisations affected by COVID-19

HMRC has provided some additional flexibility that partially exempt organisations may well wish to take advantage of for their VAT accounting. This is because COVID-19 restrictions over the last 12 months may have had an adverse impact on partially exempt organisations.

HMRC has released a Business Brief which might offer assistance to partially exempt organisations impacted by COVID-19. In short, businesses/organisations that have not been able to operate as normal due to COVID-19, and have experienced lower than normal partially exemption recovery rates, can apply to HMRC for a retrospective special method using previous year % to receive a VAT refund from HMRC and a better result.

Normally, PESMs are often difficult to get approved but HMRC has set up a new unit with an accelerated process and will look more favourably on businesses that can demonstrate they have been affected over the past year. These will be temporary alterations to business’ partial exemption methods with proposals based on representative income streams from the previous tax year to get a fair and reasonable recovery rate.

Whilst there is not an automatic approval scheme in place, we would hope that HMRC will process these applications with little fuss.

There will also be an impact on organisations within a capital goods scheme (CGS) adjustment period. The same accelerated process will also be available to businesses who use the CGS to calculate input tax recoverable on capital items they use for taxable and exempt purposes.

We have been asked by some charity clients whether this also covers organisations that have Business/Non Business Methods (“BNB”), as the Brief does not mention this. This may be because BNB methods are not heavily regulated in the legislation. We would recommend that charities that have had a reduction in their taxable commercial activities due to COVID-19 get in touch as there may be an opportunity to address this with HMRC.

If you think your business or organisation may be able to benefit from this development please contact our VAT team.

COVID-19 – Resources available to the charity sector

Just a reminder that there are a number of different resources that have arisen associated with COVID 19, to assist the voluntary sector. Generally, these comprise grants, loans, and in some cases tax reliefs.

Grant funding

As access to grants is changing on a regular basis, the best sources of information are representative bodies, membership bodies, and regulators.

For example, the Scottish Council for Voluntary Organisations (SCVO) has an excellent hub here.

Other funding resources are available to specialist sectors such as Heritage organisations here.

As part of the application process for some of these resources, it can be necessary to provide financial information. If you are having difficulty in accessing or extracting the right financial information from your organisation’s records, or need assistance in analysing or presenting it please contact our specialist COVID team at

Trading entities and certain third sector organisations may be eligible for rates related grants and reliefs – more detail can be found here.

We have also been assisting many of the clients that we already provide payroll services to with operating the Coronavirus Job Retention or “furlough” scheme, and for help with this, please contact our payroll team today at, even if you are not a current payroll client.


For loan financing, our Corporate Finance team is able to provide assistance with the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans, which charities can be eligible for. Further details are available on the C+T website here.

Loans are also available to the voluntary sector via the Scottish Government’s Third Sector Resilience Fund.

Tax reliefs

Our VAT team has been advising our charity clients on matters such as deferral of VAT payments due, deferral of planned MTD changes, zero rating of PPE, and the recent acceleration of the zero rating of electronic publications. The newest edition of the Chiene + Tait VAT Matters Newsletter outlines a number of these areas. Visit our publications page here.

There has been some good news in respect of Gift Aid. Catriona Finnie in the Chiene + Tait tax team provides more details here.