What is partial exemption, and could it affect my business?

Partial exemption can affect a VAT-registered business that makes both taxable and exempt sales. It determines how much VAT on costs can be recovered. Exempt sales and zero-rated sales are different, so the starting point is checking the activities correctly.

These answers provide general information, not advice tailored to your circumstances. Rules can change and exceptions may apply — speak to the CASS team before making a tax, accounting or financial decision.

Check what you sell

Zero-rated sales are still taxable supplies. Exempt sales follow different rules. Mixing them up can lead to the wrong VAT claim, particularly where a business has several income streams.

Separate the costs

Identify costs relating directly to taxable sales, directly to exempt sales and to both. Shared overheads usually need an appropriate calculation rather than a blanket claim for every invoice.

Review the whole year

There are limited exceptions that can allow recovery of exempt input VAT, and an annual adjustment may be needed. A single quarter does not always settle the final position.

Check before claiming

Give CASS details of your activities and cost breakdown. We can assess the position and identify where a specialist method or further advice is needed.