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Companies in exempt sectors such as finance, health, insurance, and education can only reclaim VAT on purchases to the extent that those purchases are attributable to taxable (i.e. non-exempt) sales.
- What if a purchase is used to make both exempt and taxable sales?
- How much VAT can be reclaimed?
The simple answer is that you must follow a specific calculation to determine how much VAT you may recover. Sometimes, this calculation will deliver a result which is unrepresentative of how & where your business or organisation consumes costs. In such instances a bespoke Partial Exemption Special Method (PESM) might serve you better.
We have successfully negotiated advantageous special VAT recovery methods with HMRC for our clients on many occasions.