Andrew Needham looks at partial exemption and what to include and exclude from the calculation.
The purpose of a partial exemption calculation is to make sure that a business recovers a fair and reasonable proportion of the VAT on its overheads.
The standard partial exemption method uses the ratio of taxable supplies to taxable and exempt supplies to establish the recoverable percentage. However, some income is considered to distort the calculation and has to be excluded in order to produce a fair and reasonable result. So what income is excluded, and why?
Excluded income
Certain taxable and exempt income is excluded from the calculation in order to remove any possible distortions and ensure a fair recovery of VAT on overheads.
A business must exclude:
- Any sum receivable by the
