VAT partial exemption

A business is said to be partially exempt where it makes both VATable supplies and exempt supplies or supplies otherwise that by way of business. Most supplies made in the course of business e.g. the sale of goods or services will be VATable (i.e. VAT will be charged), however, certain supplies such as finance, insurance, property letting, etc are exempt and no VAT will be charged on them. Other non-business supplies may include e.g. grant income received by a charity to further its charitable aims and objectives.

Whereas a business may recover VAT on any of its purchases and costs relating to making VATable supplies, VAT recovery is blocked on exempt and non-business supplies. Where a business makes VATable and exempt or non-business supplies it is said to be partially exempt and it will need a special VAT recovery mechanism to apportion the input VAT recovery.

4 Eyes Ltd will advise on the implementation of the most advantageous (and readily workable) partial exemption method and will also conduct periodic partial exemption reviews to check that the method is being operated correctly and that all recoverable VAT is being identified.