These can arise where a business makes sales that are a mixture of standard rated and exempt goods or services.
The treatment of such goods and services is a planning issue in its own right as, in some cases, supplies that would be exempt on their own may fall to be treated as standard rated if supplied with standard rated goods and services. There is extensive case law in this area and careful consideration is required.
If a business is partially exempt, it means that there may be a restriction on claiming all VAT input tax on purchases and expenses. The calculation of the proportion that must be disallowed can follow one of several formulas provided by HMRC or can be a specific calculation agreed with HMRC in advance.
Examples of partially exempt businesses are: charities, dispensing doctors surgeries, opticians.
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