Partial exemption

When you make both VATable and exempt supplies, you cannot reclaim all your input VAT.

What it means

A partly exempt business must apportion input VAT between taxable and exempt activities and can only reclaim the taxable proportion.

Why it matters

It affects sectors with exempt supplies — property, finance, insurance, education, health and welfare — and it is one of the most complex parts of VAT.

What it looks like in practice

The standard method apportions by turnover; a special method can be agreed with HMRC where the standard one gives an unfair result. De minimis limits allow full recovery below a small threshold.

What to watch out for

Property. Buying, letting or converting property brings partial exemption and the capital goods scheme into play, and the sums are large.

Where to get proper advice

GOV.UK for the current rates and thresholds, which move most years. Your accountant before acting — this is exactly the kind of question a fee is for.