Exempt supplies and non-economic activities will not always give you the same input tax deduction result. And also, that while the ultimate purpose of an exempt transaction has no bearing on the right to deduct, (so if you make an exempt supply the fact you intend to use the capital raised to support taxable activities does not give you the right to claim the VAT on the direct costs of making the exempt supply), the economic reason for incurring an input is important. (Source KPMG)
Source Bailii
