Splitting VAT with both taxed and exempt revenue
Written by Ilias Aarrass6 min read · Published on · Last reviewed on 
In short
With both taxed and exempt revenue you deduct VAT on general costs pro rata by revenue ratio or actual use, and recalculate it in your final VAT return of the year.
- Costs only for your taxed work are fully deductible, costs for exempt work not at all.
- You choose one method per year for all your general costs together; switching per receipt is not allowed.
- For an asset you keep tracking the ratio for another four years, for immovable property nine.
- Non-deductible VAT is not money thrown away: it counts as cost and lowers your profit.
A nurse who also gives training, a teacher who also writes copy, a sports coach with both individual guidance and workshops: increasingly a freelancer has two kinds of revenue side by side. One is exempt from VAT, the other taxed. That does not double your admin, but it does add one step: allocating your input tax. Skip it and reclaim everything and you build up a reassessment that arrives years later in one go. In this article: which costs are fully deductible, how to allocate the rest and which year-end correction belongs with it.
Sort first, calculate later
The rule is simple: you may deduct VAT to the extent a purchase is used for VAT-taxed revenue. So you sort your purchase invoices into three piles before calculating. Costs belonging solely to your taxed work are fully deductible. Costs belonging solely to your exempt work are not deductible at all; that VAT simply becomes part of your costs and still lowers your tax through profit. Only what remains, the general costs serving both, gets allocated.
| Type of cost | Example | VAT deduction |
|---|---|---|
| Only for taxed revenue | Materials for your workshops, ads for your training | Fully deductible |
| Only for exempt revenue | Trade literature and supplies for your care work | Not deductible |
| For both (general costs) | Laptop, phone, accounting, [workspace](kb:werkruimte-aan-huis-aftrekbaar), vehicle | Deductible pro rata |
The allocation key: revenue or actual use
For general costs the main rule is the revenue ratio. With € 60,000 taxed and € 40,000 exempt revenue, you deduct 60% of the VAT on your general costs. You use amounts excluding VAT and leave one-off items such as the sale of an asset out, since they distort the picture.
If that ratio gives a skewed picture, you may use actual use instead. That applies when your exempt work takes much time but yields little, or the reverse. You may only use that method if you can substantiate it, for instance with your hour records, square metres used or kilometres driven. And you choose one method per year for all your general costs together; switching per receipt is not allowed.
A care professional with workshops
- Exempt care revenue
- € 48,000
- Taxed workshop revenue
- € 12,000
- Allocation key
- 20% taxed
- VAT on general costs for the year
- € 1,900
- Deductible share
- € 380
Result: The remaining € 1,520 of VAT is not lost: it counts as cost and lowers your profit. Reclaiming all VAT in this example would leave nearly € 8,000 of reassessment outstanding over five years.
The year-end correction
During the year you work with a provisional ratio, usually last year's. In your final return of the year you recalculate with the actual figures and correct the difference in one go. If your revenue mix shifts, because your workshops grow faster than your care work for instance, you either receive VAT back or pay extra at that point. Do not forget this recalculation: it belongs in your year-end routine alongside your stock and your private car use.
For investments the correction runs longer. When you buy an asset you track the ratio not only in the year of purchase but in the four years after; for immovable property that is nine years after. If your ratio shifts by more than ten percent in such a year, you correct one fifth or one tenth of the VAT. In practice this means noting the purchase year and the applied ratio with any larger purchase, so that you or your bookkeeper can still reconstruct it three years on.
When this does not apply
With only exempt revenue there is nothing to allocate: you reclaim no VAT and often file no VAT return at all. With only taxed revenue you deduct everything under the normal rules. The difference between an exemption and the zero rate matters here, because with the zero rate you keep your right to deduct; see exemption versus zero rate.
If you are considering the small business scheme, run the numbers with your revenue mix included. Under that scheme your deduction lapses entirely, including on your taxed branch, which works out differently than for a colleague with only taxed revenue. Have it calculated before you sign up. You can deregister at any time, but you can then only rejoin after the rest of the calendar year plus the year after. Working in healthcare, VAT exemption in care is the article to read alongside this one.
Frequently asked questions
Do I need two VAT numbers or two sets of records?
No. One business, one VAT number and one set of records. You only split revenue and costs within those records, preferably with separate ledger accounts. See also several activities in one sole trader business.
Is the non-deductible VAT simply lost?
No, it becomes part of your cost base and therefore lowers your profit and your income tax. You save less than with a VAT deduction, but it is not money thrown away. So post those costs including VAT.
Which ratio do I use in my first year?
A substantiated estimate based on your expected revenue mix, recalculated in your final return of the year with actual figures. Note that estimate briefly so you can later show where it came from.
I deducted everything for years. Now what?
Correct it yourself through a supplementary return for the years concerned. Self-reporting costs you tax interest and sometimes a penalty, but considerably less than when it surfaces during an audit. Do have the calculation checked before filing.
Sources
- Deducting VAT with taxed and exempt revenueBelastingdienst · belastingdienst.nl
- Determining VAT deduction with mixed useBelastingdienst · belastingdienst.nl
- Recalculating in the final return of the yearBelastingdienst · belastingdienst.nl
Sources checked on
This article provides general information based on the rules known for 2026 and does not replace personal tax advice. For your specific situation, we're happy to take a look with you.
