Having established the extent to which VAT has been incurred for the purpose of the business (i.e. the extent to which it is input tax) the charity must then consider the extent to which that input tax can be attributed to taxable supplies (as opposed to VAT exempt supplies).

The first part of this is direct attribution. Input tax used exclusively to make taxable supplies is recoverable in full. Input tax used exclusively to make exempt supplies is not recoverable.

For further information charities should refer to HMRC’s Partial Exemption Manual and HMRC VAT Notice 706: Partial Exemption.