Q: Client is VAT registered and is operating on the cash accounting scheme, as their taxable turnover is only £700k and so below the £1.35m cash accounting limit. The majority of their sales are taxable supplies of goods, but they have a small residential property portfolio making exempt supplies of property rental. They know that they have to carry out a partial exemption calculation but are unclear what values to use when operating the standard method. What values do they use?
A: As the business is on cash accounting, there are special rules for particular calculations. In this case their Partial Exemption calculations must be based on payments made and received, rather than on invoices raised or received, as per VAT Notice 731 para 4.6.
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