VAT review ― partial exemption and capital goods scheme

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

This guidance note is intended to provide an overview of the areas that should be considered as part of a VAT review when a business is partially exempt, or has non-business activities. This document should be used in conjunction with the VAT review checklist Checklist ― VAT review when undertaking a review to seek to ensure all the relevant items have been covered.

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

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