What defines a partially exempt trader?

A partially exempt trader is defined as a business that makes a mixture of taxable and exempt supplies. This means that while the business engages in activities that are subject to VAT (taxable supplies), it also conducts transactions that are exempt from VAT. Due to this combination, the ability of the business to reclaim VAT on its inputs (the VAT paid on purchases) is limited.

Partially exempt traders must apportion their input VAT claim based on the proportion of taxable versus exempt supplies they make. This makes their VAT position more complex compared to a fully taxable business, which would typically be able to reclaim all the input VAT incurred on purchases related to its taxable supplies.

In contrast, a business that only makes exempt supplies or cannot charge VAT on any sales would not qualify as a partially exempt trader, as it does not involve both types of supplies. A business that can reclaim full input VAT operates solely in the realm of taxable supplies, thus distinguishing it from a partially exempt status. This uniqueness shapes how the partially exempt trader must navigate VAT recovery and compliance.