Partial Exemption

Partial Exemption

Some goods and services are exempt from VAT, such as insurance and finance, education and training, and charitable fund-raising events.

If all of the goods and services you sell are exempt, your business is exempt and you won’t be able to register for VAT. This means you won’t be able to reclaim any VAT on your business purchases.

If you’re VAT-registered and incur any input tax that will be used to make exempt supplies, you’re classed as partly exempt.

Companies should operate under partial exemption if they meet both of the following conditions:

• They’re VAT registered.
• They purchase goods that include VAT then sell or use these goods to generate income that’s classed as VAT Exempt.

You should use this article with VAT Notice 706 – VAT Partial Exemption. If you’re using a Special Partial Exemption method, or the Standard Method Override applies, you should contact your local VAT office.

Partial Exemption – Standard Invoicing

1. Create nominal Code – EF11 – Non-reclaimed VAT

2. VAT Codes – E –  for exempt VAT on Sales

                           K – Use for items to be excluded from the calculation whether they’re taxable or exempt. For example, the sale of capital goods, incidental real estate or financial transactions and self supplies. Rate is 20%

                          E – for exempt VAT on Purchases not related to the partial scheme

                          H – For all other expenditure on which VAT is charged, that’s expenditure not relating or attributable to either vatable or exempt income. Rate is 20%