Partial Exemption

Partial exemption applies when you make both taxable and exempt supplies. OneSixth handles the Standard Method calculation, the longer-period (annual) adjustment, and the de minimis test — and gives you the tooling to classify input VAT correctly first.

Guided setup

The setup wizard walks through each decision and saves it for the calculation:

1. Eligibility — confirm you make both taxable and exempt supplies.
2. Exempt income — record the exempt activities involved.
3. VAT return frequency & stagger — pre-filled from your accounting platform where available; override if needed and we'll note the change.
4. Method — Standard Method, or a Special Method if you have one agreed with HMRC (record its description).
5. In-year method — recover at the current-year rate, or use the prior-year % until the annual adjustment. First-year businesses with no prior-year % can instead tick first-year use-based here and enter an intended-use recovery rate, with a note recording the basis for it.
6. Annual de minimis election — optionally recover 100% of input VAT in-year and review the position at the annual adjustment (only relevant where the prior year was de minimis).
7. Accounts — create or select the nominal accounts, including a residual-input-VAT clearing account.
8. Starting % — set the provisional recovery rate to begin with.
9. Review — confirm everything before going live.

Tax codes

Sync imports every VAT/tax rate configured in your accounting platform, then you map each one so pulled transactions classify automatically. Each code gets a sales supply type and a purchase attribution.

Sales → supply type — what the code represents when it appears on a sale:

• Taxable 20% / Taxable 5% — standard- and reduced-rated sales; count as taxable in the recovery fraction.
• Zero rated — taxable at 0%; still counts as taxable, so it supports input-VAT recovery.
• Exempt — exempt supplies; these drive the exempt side of the fraction and restrict recovery.
• Outside scope — outside the scope of UK VAT; excluded from the fraction entirely.
• Specified supply — certain finance and insurance supplies to customers outside the UK that are exempt but still carry a right to recover input VAT.

Purchase → attribution — how the input VAT on a purchase with this code is treated:

• T — Taxable — wholly attributable to taxable supplies, so 100% recoverable.
• E — Exempt — wholly attributable to exempt supplies, so not recoverable.
• R — Residual — shared overheads used for both taxable and exempt activities; apportioned by the recovery %.
• B — Blocked — VAT that is never recoverable by law (e.g. business entertainment, most cars).
• N — Outside scope — non-business or outside-scope input VAT, excluded from the calculation.

• Recovery % override — for genuine partial-exemption special-method (hybrid) codes you can set an HMRC-agreed recovery percentage and lock it to prevent accidental changes.
• Rate-drift detection — we flag any code whose rate has changed in your accounting system since the last sync.

Classifying transactions

• Pull each period's sales and purchases and assign supply type / attribution per row, with bulk-apply for speed.
• Save classification rules by account code, supplier name, or VAT rate so they apply automatically on the next pull.
• When you conclude a review, revised tax codes can be pushed back onto the source invoices and bills in your accounting platform.

Reverse charge & postponed import VAT (PIVA)

Reverse-charge purchases (e.g. cross-border services) and postponed import VAT create a deemed self-supply: you account for output VAT and reclaim input VAT on the same transaction. For partial exemption this needs careful handling:

• Never enter the deemed output VAT as taxable income. The self-supply output sits outside the partial-exemption fraction — including it would inflate your taxable supplies and overstate recovery (VATA 1994 s.8(3); VAT Notice 706 §4.8).
• Only the related input VAT counts. Attribute it like any other input — Taxable, Exempt or Residual — according to what the underlying purchase is used for.
• That input VAT does count towards the de minimis tests, so don't omit it altogether — just keep the deemed output out of the income figures.

Calculations

• Quarterly provisional recovery rate.
• De minimis test against £625/month average and 50% of total input tax. Where you've made the annual de minimis election, full recovery is taken in-year and reviewed at the annual adjustment; the calculation shows whether full recovery was actually applied and flags any additional recovery expected for deferred periods.
• First-year use-based recovery applies your intended-use percentage until a prior-year figure exists.
• Annual adjustment at year-end with carry-forward — including a coverage checker that warns if part of the tax year isn't covered by a period.
• Historic periods can be added for mid-year adoption so the annual adjustment spans the whole tax year. The historic-period dialog uses calendar date pickers — set the period start and the end auto-fills a standard 3-month quarter — and shows faded, read-only checksums totalling your income and input VAT so you can cross-check the figures against the return before saving.
• SMO (Standard Method Override) calculator with both HMRC thresholds, for when use differs materially from the standard method.