VAT you incur on purchases that are used exclusively for non-business purposes is not input tax and you cannot recover it. Partly exempt businesses must undertake calculations which work out how much input tax they may recover. If you make, or intend to make, both taxable and exempt supplies and incur input tax that relates to both kinds of supply, you’re classified as ‘partly exempt’. 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, read section 11, which explains this in more detail. Supplies that are made outside the UK that would be taxable if in the UK and certain exempt supplies to non-UK customers also give the right to recover VAT, but there are special rules (see section 9).
Most taxable supplies require VAT to be charged at the standard rate, but some taxable supplies will attract VAT at the reduced or zero rate.Īs a VAT-registered business, you can recover the VAT on your purchases which relates to taxable supplies that you make, or intend to make (read paragraph 2.4 for information about ‘blocked’ input tax). not specifically exempted - if a supply is specifically exempted, then it’s termed an exempt supply.made in the course or furtherance of business.The notice explains that taxable supplies are supplies of goods or services that are: The basic rules of VAT are set out in VAT guide (VAT Notice 700). Partial exemption in general 2.1 The definition of ‘partial exemption’ This is supplemented by more detailed rules in regulations 99 to 110 of the Value Added Tax Regulations 1995.
The primary UK VAT law concerned with the right to deduct (recover) input tax and partial exemption is contained in sections 24 to 26 of the Value Added Tax Act 1994. The impact of partial exemption on some specific business situations is also explained. It also explains when you can recover all of your input tax even though part of it relates to exempt supplies. the calculations and input tax adjustments you must make.the partial exemption methods available to you.You will have to use a partial exemption method to work out how much input tax you can recover. If your business is partly exempt, you may not be able to recover all your input tax. Overview 1.1 What this notice is aboutĪ business is partly exempt if it makes, or intends to make, both taxable and exempt supplies and incurs tax on costs which relate to both. This notice applies to supplies from 1 January 2021. This notice cancels and replaces Notice 706 (June 2011). This guidance will be updated when this change ends.
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