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HMRC internal manual

Business Income Manual

Value Added Tax: trader exempt/not taxable

Where the trader is exempt or where he or she is not a taxable person (because taxable turnover does not exceed the VAT registration threshold (BIM31515) and he or she has not opted to register), there is no VAT account. The trader does not have to account for VAT on sales etc and the burden of any VAT on purchases and on other supplies to him or her of goods and services for the purposes of his business (including capital items) rests with him or her and cannot be relieved. Accordingly the VAT in cost of the goods and services supplied to the trader is for the purposes of tax on trade profits an element of the price paid by him or her. The purchases figure deductible in computation of taxable trade profits is inclusive of the irrecoverable VAT and the capital expenditure on any assets ranking for capital allowances is inclusive of the irrecoverable VAT. Any VAT borne on capital expenditure which does not rank for capital allowances is an ingredient of that capital expenditure and is not deductible in the computation of trade profits.