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Partial exemption

A business that makes both taxable and exempt supplies is partly exempt. Broadly, VAT on costs related (or ‘attributable’) to taxable supplies is recoverable whilst VAT incurred on costs attributable to exempt supplies is irrecoverable (subject to some de minimis rules for negligible amounts of exempt input tax). Partial exemption methods exist so that businesses can apportion their input tax between costs used for taxable activities (where VAT is recoverable) and costs used for exempt activities (where VAT is irrecoverable). Partial exemption methods can also cover non-business activities on which VAT is generally also irrecoverable.

Partial exemption calculations can range from fairly straightforward