It’s a game

My client runs an amusement arcade so his income from gaming machines became VAT-exempt on 1 February 2013. He purchased a machine on 10 January 2013 for £10 000 plus VAT.

My question is: how should he have treated the purchase for partial exemption purposes? Is the expense fully claimable for input tax purposes because it was purchased before 1 February 2013 when the income from the machines was still taxable or is it only partly claimable (residual input tax) because some use will be relevant after 31 January?

Should he also go back and adjust the input tax he fully claimed on fruit machines purchased in the three previous quarters of the partial exemption tax year on the basis that they will be used for exempt sales after 31 January?

Taking the situation a stage further must he account for output tax on the full selling price...