Partial exemption 鈥� standard method
Value Added Tax
Guidance
This guidance note covers the standard method for determining VAT recovery under partial exemption.
For an overview of partial exemption more broadly, see the Partial exemption 鈥� overview guidance note.
For in depth commentary on the legislation and case law, see De Voil Indirect Tax Service V3.461.
What is the standard method?
The standard method is the default way that a partly exempt businesses (ie a business which makes a mixture of taxable and exempt supplies) must determine how much VAT it can recover on costs.
At a very high level the standard method can be divided into two steps:
- 鈥�
the 鈥榙irect attribution鈥� of input tax
- 鈥�
the apportionment of 鈥�residual input tax鈥�
As well as these two steps, businesses will also need to consider whether they qualify for full VAT recovery under the partial exemption 鈥榙e minimis鈥� rules (see the Partial exemption de minimis limit guidance note). They are also under an obligation to ensure that the standard method provides a 鈥榝air and reasonable result鈥�. If it does not, the business
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