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Exemption from VAT

Certain supplies are exempt from VAT, so no tax is charged on them. A trader who makes only exempt supplies cannot register for VAT, and so cannot obtain credit for input tax suffered on his business expenses.

A trader with supplies (sales) below the registration threshold is exempt from registering for VAT. However, it could be beneficial to register in such cases, to recover VAT on business expenses.

Partial exemption

Special rules are needed in the case of a trader who makes both taxable supplies and exempt supplies (referred to as a partially exempt trader).

In principle, a partially exempt trader can reclaim in full any input tax suffered in relation to the making of taxable supplies, and cannot reclaim any input tax suffered in relation to the making of his exempt supplies.

Input tax suffered on supplies used both for the purposes of his taxable supplies and for the purposes of his exempt supplies must be apportioned between the two activities, and only the part relating to the taxable supplies can be reclaimed.

Charity VAT, Financial services VAT, Property management VAT are but three examples where partial exemption applies.

This requires an analysis of the income streams of the organisation to ascertain whether they are taxable, non-business or exempt. This will determine the appropriate VAT treatment to be applied to the outputs and inputs of the organisation, including central costs.

We will carry out a review of the partial exemption method used by the organisation and ensure that it has been correctly applied over the last three years. Where appropriate we will also identify a more suitable method, which will increase your VAT recovery whilst still producing a fair and reasonable result. Such a method will require acceptance from H M Customs & Excise and we will approach them to obtain their approval.

If partial exemption has not been applied previously we will develop a method for you and obtain acceptance as required.

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