Tally can be used by companies that are “Partially exempt” for VAT purposes. Sales are entered as usual – just select the relevant VAT rate like you normally would. The complications for partial exemption arise when dealing with VAT on purchases. You should make yourself familiar with the HMRC guidance. The “Standard Method” they list is the one that would be used by 99% of Tally users. The guidance gives instructions on how to work out what percentage of VAT you can reclaim on a “Mixed use” purchase. Assuming you work out you can claim 25% of the VAT on an item and it costs £100 + £20 VAT then simply edit the item in Tally so that the net is £115 and the VAT amount is £5. This will result in the correct amount being claimed on your return.