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HMRC internal manual

VAT Partial Exemption Guidance

Partial Exemption methods: the standard method


The standard method

The standard method is the default option for calculating deductible input tax for all businesses, which they must use unless we have approved or directed an alternative special method. Only calculations that follow the mechanics set out below are under the standard method. Any significant changes, such as using the previous year’s recovery rate provisionally until the annual adjustment, make the method a special one.

The vires for the standard method is Article 173(2)(c) of the principal VAT Directive (2006/112/EC) [Formerly Article 17(5)(c) of the Sixth VAT Directive (Dir. 77/388)].

In UK law the standard method is introduced in VATA 94, section 26(3) and set out in the VAT Regulations SI 1995/2518, Regulation 101.

Attribution to taxable supplies

Regulation 101 sets out what input tax can be attributed to taxable supplies.

Regulation 101(2)(b) states that there shall be attributed to taxable supplies the whole of the input tax on such of those goods or services as are used or to be used by him exclusively in making taxable supplies.

Regulation 101(2)(c) states that no part of the input tax used or to be used exclusively in making exempt supplies, or in carrying on any activity other than the making of taxable supplies shall be attributed to taxable supplies.

A proportion of input tax incurred for both taxable and exempt supplies is attributed to taxable supplies. This proportion is determined by the standard method calculation set out in Regulation 101(2)(d). The formula to be used is:

value of taxable supplies in the period (excluding VAT) x 100
value of all supplies in the period (excluding VAT)  

This gives the claimable percentage of non-attributable input tax. - see below for information as to how many decimal places the percentage should be taken.


This is set out in Regulations 101(4) and 101(5).

If it is not a whole number… unless…
it is to be rounded up to the next whole number the business incurs more than £400,000 residual input tax per month on average.