Partial Exemption Method

HBAccounting MAAT, AAT Licensed Accountant Posts: 6 New contributor ?
I have taken on a new farming client, who are PE and most of their income is exempt. They haven't been doing their PE correctly so we are trying to rectify and move forward.

It has been a few years since being so involved with PE and I wanted some clarification as there seems to be some conflicting info out there. I have previously known to attribute the inputs that relate to a taxable income as standard and claim the VAT. Anything purchased relating to an exempt income goes as exempt and the VAT cannot be claimed. Then check the deminis limits and calculate the percentage of residual/unattributable inputs that may be able to be claimed - taxable turnover over total turnover.

I now wonder whether this can be simplified as I have been led to believe. Can I simply calculate the percentage of taxable sales and apply this percentage to the inputs for the amounts I can claim? For example 50% of my sales are taxable so I can claim 50% of my input tax?

Any pointers gratefully received.


  • douglasstroud
    douglasstroud Registered Posts: 295 Dedicated contributor ? ? ?
    My understanding is that most business's apply the standard method of residual apportionment which would use either the Values based, Use based or Use of the previous years recovery %.
    Special methods can be used which are based on a variety of criteria, one of which you have described above of using the number of taxable transactions over the total number of transactions but as far as I am aware before this method can be used you need to apply to HMRC and obtain written approval to use the proposed method.
    Using the standard method instead may well turn out to be the easier option.

    As said this is only the way I understand it and should not be taken as advice.
    SI 1995/2518 Reg.102 may be of further assistance for special methods or Reg.101 for standard

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