Exempt or outside the scope: what is the difference?
Some sales are exempt from VAT, and some payments are not sales at all. See why neither is the same as zero rated.
This path is practice in how the records and the sums work. It is not tax advice. Any rate or allowance in a question is an example for that question, so check GOV.UK for the current figures.
In this room: 3 tasks, 9 questions
- Exempt supplies2 questions
- Zero rated is not the same as exempt3 questions
- Outside the scope4 questions
Some sales are exempt. The law says no VAT is charged on them at all.
- Insurance
- Postage stamps
- Bank charges and interest on a loan
- Most health care and education
- Rent on a home
The seller of an exempt supply charges no VAT. It also cannot claim back the input tax on the costs of making that sale.
Answer the questions below
1 more question follows in this task.
With both, the customer pays no VAT. The difference is what the seller can claim back.
| Zero rated | Exempt | |
|---|---|---|
| VAT charged to the customer | None | None |
| Is it a taxable supply? | Yes | No |
| Can the seller claim input tax on its costs? | Yes | No |
A business that makes only exempt sales cannot register for VAT. The VAT on everything it buys is part of the cost.
Answer the questions below
2 more questions follow in this task.
Some payments are not sales of goods or services at all. VAT has nothing to do with them. They are outside the scope of VAT.
- Wages paid to staff
- Money the owner takes out of the business
- Money moved between the business's own bank accounts
- Tax paid to HMRC
There is no VAT to charge and none to claim back. These payments are left out of the VAT records.
Answer the questions below
3 more questions follow in this task.