Client has received an Arts Council Grant/Award. I'm happy that the Award is taxable inasmuch as it has arisen directly as a result of his trade. I'm also reasonably happy that it is not subject to VAT i.e. outside of the scope of VAT based upon HMRC's own guidelines.
What I'm struggling with is the impact of input tax which, instinct tells me, should not be reclaimed. I'm familiar with partial exemption rules but have never had to consider input tax in the context of outside of the scope income.
Is the correct treatment merely to disallow any input tax that relates to the job which has given rise to the grant/award?