VAT-registered businesses that make exempt supplies must follow specific procedures to handle input tax costs associated with those exempt activities. Partial exemption rules determine how much input tax can be recovered when a business has both taxable and exempt supplies. Businesses must calculate and apportion their input tax correctly to ensure they only recover the proportion relating to taxable turnover. HMRC provides guidance on the methods and documentation required to demonstrate compliance with partial exemption requirements.
Source: HMRC (GOV.UK) – Read the original