A business that incurs expenditure on taxable and exempt business activities is partially exempt for VAT purposes. This means that the business is required to make an apportionment between the activities using a 'partial exemption method' in order to calculate how much input tax is recoverable.
HMRC’s guidance explains that as a VAT-registered business, you can recover the VAT on your purchases which relates to taxable supplies that you make or intend to make. There are some items where input tax recovery is ‘blocked’. Supplies that are made outside the UK that would be taxable if in the UK and certain exempt supplies to non-EU customers also give the right to recover VAT, but there are special rules. In principle, you cannot recover VAT that relates to any exempt supplies, although you may be able to if the VAT is below certain limits.
There are a number of partial exemption methods available. The standard method of recovering any remaining input tax is to apply the ratio of the value of taxable supplies to total supplies, subject to the exclusion of certain items which could prove distortive. The standard method is automatically overridden where it produces a result that differs substantially from one based on the actual use of inputs. It is possible to agree a special method with HMRC.
The VAT incurred on exempt supplies can be recovered subject to two parallel de-minimis limits.
03/07/2025 - More...
Side income over £1,000 may mean filing a tax return. HMRC is urging part-time earners to check their tax position for
03/07/2025 - More...
Registering for payroll is essential when hiring staff. From HMRC registration to legal compliance, getting payroll
03/07/2025 - More...
You must tell HMRC if you no longer need to file a tax return. Whether you have stopped trading or no longer rent out
With our newsletter, you automatically receive our latest news per e-mail and get access to the archive including advanced search options!
» Sign up for the Newsletter
» Login