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Bookkeeping › VAT Records

What is partial exemption and how does it affect input VAT recovery?

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Answer

A partially exempt business makes both taxable and exempt supplies. It can reclaim input VAT relating to taxable supplies but not (generally) input VAT relating to exempt supplies; overhead input VAT is apportioned by a method (usually turnover-based). A de minimis limit may allow full recovery if exempt input VAT is small.
Overhead input VAT 1,000, taxable 80% / exempt 20% -> reclaim 800, restrict 200.
Real-world example A business with both taxable sales and exempt rental income apportions its overhead input VAT.

Common follow-ups: What is the de minimis rule? | How is overhead input VAT apportioned?

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All 25 VAT Records questions