Partial exemption ― standard method

Produced by a Tolley Value Added Tax expert

Value Added Tax

Guidance

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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 ― 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:

•
the ‘direct attribution’ of input tax
•
the apportionment of ‘residual input tax’

As well as these two steps, businesses will also need to consider whether they qualify for full VAT recovery under the partial exemption ‘de minimis’ rules (see the Partial exemption de minimis limit guidance note). They are also under an obligation to ensure that the standard method provides a ‘fair and reasonable result’. If it does not, the business

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