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HMRC internal manual

VAT Partial Exemption Guidance

Consideration of Partial Exemption (PE) special methods: estimated input tax recovery

It is sometimes appropriate to agree to the use of notional input tax calculations when historical claims are made in the absence of full records. These take, for example, an amount of purchases from a profit and loss account and assume that a quantity will have incurred input tax and determine a percentage of input tax from these net inputs which is then considered under a partial exemption method. While such ideas are acceptable when it is a question of considering alternative evidence for historical claims, such calculations must be avoided for ongoing methods. Input tax recovery should always be based on the actual input tax incurred and the use of the input tax bearing costs in making taxable supplies.