This guidance note provides an overview of the main rules relating to partial exemption. Partial exemption calculations are covered in the following guidance notes:
- Partial exemption standard method
- Partial exemption special methods
There are specific terms used in connection with exempt supplies and partial exemption. A glossary of the commonly used terms can be found in the Partial exemption glossary guidance note.
Please note that partial exemption does not deal with private supplies. Businesses cannot recover VAT incurred on costs associated private activities and any input tax should normally be apportioned between business and private activities before a partial exemption calculation is undertaken. However, since January 2011, a business can agree a combined partial exemption method that covers non-business and exempt activities with HMRC. VATA 1994, ss 24–26; SI 1995/2518, regs 99–110; 2006/112/EC, Title IX, Chapters 1–10, Articles 131–166, 173; PE11500; De Voil V7.342 (subscription sensitive); De Voil Indirect Tax Intelligence, 148(8) (subscription sensitive)
See ‘Partial exemption for different industry sectors’ by Gary Campbell in Tax Journal, Issue 1094, 23 (30 September 2011) (subscription sensitive).
For an overview of the main partial exemption rules, see the Flowchart ― partial exemption.
HMRC’s published guidance on partial exemption can be found in Notice 706 and their Partial Exemption manuals. HMRC Notice 706