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HMRC internal manual

VAT Partial Exemption Guidance

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HM Revenue & Customs
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Partial Exemption methods: example paragraphs: exclusions from calculations

Usual exclusions from an outputs based calculation

These exclusions will not be appropriate to every business, and there may be other exclusions appropriate to your business. When dealing with a sectorised method, you should also consider whether each of the exclusions is appropriate for each sector, and whether there are additional exclusions required for specific sectors.

You must exclude from the calculations in [specify] the value of any supplies specifically excluded by Regulation 101(3) of the VAT Regulations 1995 (as amended). You must also exclude the value of all supplies in the following categories:

  1. any supply made from branches situated outside the UK [and the value of any non-business activity carried on from branches situated outside the UK];
  2. incidental taxable financial transactions;
  3. any supply of any goods or services sold on in the same state connected to the making of an advance or the granting of any credit, including for example, goods sold on by a finance house under a hire purchase agreement;
  4. any supply of goods or services made to connected parties, where the supply is acquired for the purposes of your business and supplied to the connected party without material alteration or further processing;
  5. supplies made where it is intended that the same, or equivalent, goods or services will be subsequently used by the business including for example, goods or services forming part of a sale and leaseback transaction.

Usual exclusions from an input / input tax based calculation

These exclusions will not be appropriate to every business, and there may be other exclusions appropriate to your business. When dealing with a sectorised method, you should also consider whether each of the exclusions is appropriate for each sector, and whether there are additional exclusions required for specific sectors.

You must exclude from the calculations in [specify] any [input tax on] [VAT incurred on] supplies, acquisitions and imports specifically excluded by Regulation 101(3) of the VAT Regulations 1995 (as amended). You must also exclude [input tax on] [VAT incurred on] all supplies, acquisitions and imports in the following categories:

  1. goods or services sold on in the same state connected to the making of an advance or the granting of any credit, including for example, goods sold on by a finance house under a hire purchase agreement;
  2. goods or services made to connected parties, where the supply is acquired for the purposes of your business and supplied to the connected party without material alteration or further processing;
  3. goods and services which are treated as being both supplied to you and by you as an agent;
  4. capital goods which you have acquired for use in your business [and for any non-business activity carried on by you];
  5. self supplies;
  6. supplies on which input tax is excluded from any credit under Value Added Tax Act 1994 (as amended) s25(2) by an order under s25(7).

Supplies and connected parties

Where the value of a supply made to a business connected party is either significantly less than, or significantly greater than, its open market value, then, the value of the supply shall be taken to be its open market value for the purposes of this method.