The key to this discussion are the words “taxable supply”. I have been a UK casino affiliate company since 2001. In the days when we were allowed to use Google AdWords, we were paying significant amounts of VAT on the advertising (it was processed through Eire at the time and incurred VAT at their rates) and obviously wanted to register for VAT in order to reclaim it.
Our accountants advised that we couldn’t register for VAT because casino/gambling-related earnings were an “exempt supply”. We knew of other UK affs who were VAT registered at the time and kept pushing our accountants to check their stance on it. The answer remained the same.
If a proportion of our income came from non-gambling affiliated programs, we would be able to register and reclaim the non-gambling proportion of our input VAT.
If PPC ever becomes a viable option again in the future, we would have to have another look at the situation. Currently, our business running costs are very small and the proportion of them attracting VAT are even smaller.