VAT Partial Exemption Guidance

Purpose:
The purpose of this guidance document is to provide detailed information on partial exemption and the Capital Goods Scheme, as well as various principles, methods, powers, and considerations related to partial exemption. The document aims to clarify the rules and regulations for businesses navigating these complex tax areas.

Effects on Industry:
The partial exemption system can have a significant impact on industries, particularly those involved in mixed taxation scenarios where some goods or services are exempt from Value Added Tax (VAT) while others are standard-rated. Businesses operating within these sectors may need to carefully consider their PE methods and powers to ensure compliance with tax regulations. The Capital Goods Scheme also affects industries that acquire capital assets, which can be depreciated over time.

Relevant Stakeholders:
This guidance is relevant to various stakeholders in the business community, including:

• Businesses operating within mixed taxation sectors, such as manufacturing, construction, and agriculture
• Tax professionals and accountants advising clients on PE methods and powers
• Companies acquiring capital assets subject to depreciation under the Capital Goods Scheme

Next Steps:
To ensure compliance with tax regulations, businesses should:

• Review their current PE method and consider switching if they meet certain criteria
• Understand the powers available to them in terms of partial exemption
• Familiarize themselves with the Capital Goods Scheme rules for depreciating capital assets

Any Other Relevant Information:
Additional context and information include:

• The legal history of the partial exemption system and its evolution over time
• A glossary of key terms related to partial exemption and the Capital Goods Scheme
• Guidance on specific trade sectors, such as construction, manufacturing, and agriculture