VAT becomes considerably more complex for partially exempt businesses. When a business makes both taxable and exempt supplies, it cannot recover all of its input VAT, and special rules determine how much can be reclaimed.
What Is Partial Exemption?
Partially exempt businesses make a mix of taxable supplies, which allow VAT recovery, and exempt supplies, which do not. Common examples include some financial, property and insurance activities. The challenge is splitting input VAT fairly between the two.
The Standard Method
Most partially exempt businesses use the standard method, recovering VAT directly attributable to taxable supplies in full, blocking VAT on exempt supplies, and apportioning the remainder based on turnover. A de minimis limit can allow full recovery where exempt input VAT is small.
Special Methods
Where the standard method gives an unfair result, HMRC may agree a special method that better reflects how costs are used. Annual adjustments then true up the year’s recovery.
How TaxDigit Can Help
Our Guildford-based team helps partially exempt businesses calculate and maximise VAT recovery correctly. Get in touch for specialist VAT support.
Partially Exempt Businesses: UK-Wide VAT Support
Partially exempt businesses face some of the trickiest VAT rules, and they operate right across the United Kingdom, not just near our Guildford head office. TaxDigit helps partially exempt businesses UK-wide recover the right amount of input VAT and stay on the correct side of the rules.
Our chartered certified accountants build a robust partial exemption method, run the annual adjustment and check the de minimis limits so your VAT recovery is both accurate and defensible. We support clients UK-wide, both remotely and from our Guildford office.
The hardest part for partially exempt businesses is often the apportionment of overhead VAT that relates to both taxable and exempt activities. The standard method does not always give a fair result, and a special method agreed with HMRC can sometimes recover significantly more. We review which approach suits your business and keep the calculation consistent year on year.
How we help partially exempt businesses
- Calculating recoverable input VAT under the standard method
- Applying the de minimis limits to recover VAT in full where possible
- Designing and agreeing a special method with HMRC where beneficial
- Running the annual adjustment accurately
- Documenting the method so it withstands an HMRC review
HMRC explains exemption and partial exemption here: HMRC guidance on VAT exemption and partial exemption.
Frequently Asked Questions
What is a partially exempt business?
A partially exempt business makes both taxable and exempt supplies, which means it cannot recover all of its input VAT and must apportion it under partial exemption rules.
What are the de minimis limits?
If exempt input VAT falls below certain limits, a partially exempt business may be able to recover all of its input VAT for that period.
Can TaxDigit help if I am not based in Guildford?
Yes. We advise partially exempt businesses UK-wide, remotely and from our Guildford office.