My client is a small internet company. They have a functioning website with lots of visitors, but they have not yet implemented any way to make money- they are focusing on increasing users first and adding features.
The intention is that they will have both taxable and exempt supplies one day, but it is anyone's guess what the split between these will be. So I guess this makes them 'partially exempt' but what % to use if we have no idea what the split between taxable and exempt supplies will be?
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For partial exemption you do an annual adjustment in the 5th VAT quarter. Everything should be clear then as to how much VAT is recoverable.
Not quite. You should claim the proportion Taxable/Total in each quarter 1-4, then in the fifth quarter, recalculate using all four quarters figures and make an annual adjustment.
You problem in the short term is that your proportion is 0/0, which, mathematically, has no answer.
So, until you make some sales, yes, you'll just have to guess.
They currently are not in a position to make any sorts of sales (as you say, they have not implemented any way to make money).
As such they should not be VAT registered traders at all at present. Intention to make taxable supplies involves a bit more than a woolly "we will set something up some time".