01
Recovery follows use
A VAT-registered business that makes both taxable and exempt supplies may not be able to recover all input tax. Direct attribution comes first, followed by a fair method for residual costs and the relevant de minimis tests.
- Direct attribution
- Standard method calculations
- Partial exemption special methods
- Annual and longer-period adjustments
02
The method must remain fair
A method can become distorted as the business changes. Acquisitions, disposals, new exempt income, overseas activity and one-off transactions can all require review.
- Method performance testing
- Special method applications
- Standard method override risk
- Historic recovery review
Primary sources
Tax guidance changes. These official sources were checked on 31 August 2026.
VAT Notice 706: partial exemption