Supplies to VAT exempt organisatiosn

Fireraiser Registered Posts: 91 ? ? ?
I have a new client who produces healthcare software. He currently has only one customer, which being a charity holds a VAT exemption certificate.

So this means that even though he supplies a VATable service, his customer doesn't pay VAT. Does this mean that he can't register for VAT, as he's effectively supplying exempt services, or can he register for VAT and reclaim VAT on his purchases?

I expect that the majority of his future customers will also be exempt, being either NHS or charities, but if he sells to the private sector, he will then be making some VATable supplies.

My brain hurts!


  • T.C.
    T.C. Registered, Tutor Posts: 1,448
    I had dealings with similar exemptions in the past. The seller should satisfy themselves that the buyer is exempt and should take a copy of their exemption certificate. Then they do not have to charge the VAT.
    However, the seller (your client) can still register for VAT and reclaim on purchases. He may supply to other buyers in the future who do not hold exemption certificates.
    Hope that helps.
  • Fireraiser
    Fireraiser Registered Posts: 91 ? ? ?
    Thank you!
  • payrollpro
    payrollpro Registered, FMAAT Posts: 427 Dedicated contributor ? ? ?

    Don't forget to make sure your client quotes the specific exemption on the invoices, if s/he decides to register. My supplies to exempt organisations always have to quote the relevant schedule, in my case Sch 9 for education services to a charity, to validate the entires on the invoice.

    The rule for partial exemption is that if the total value of the exempt supplies is less than 50% of the annual total then input tax is recoverable in full, assuming once again that they are registered. Otherwise your client has to identify purchases which are specifically and wholly related to the exempt supply and hence not recoverable at all and to apportion the balance. A pain but it gets easier as you get more experienced with it.

    Fortunately my supplies are well below 50% so I get the best of both worlds.

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