Out of Scope or Exempt? Join the office debate!

Raging Pineapples

So the other day we got into a debate in the office, and I thought I'd see what you all think:

How would you actually DEFINE transactions that are Out of the Scope of VAT in comparison to those that are simply Exempt?

I had always learned it this way:

NOT IN SCOPE: VAT is a sales tax, but these transactions are not sales or services of any kind and therefore cannot possibly logically, not even feasibly, concievably or remotely ever ever ever have anything to do with VAT.

EXEMPT: Goods and Services which The Revenue has decided for some greatly wise reason known only to themselves and the rest of the EU not to charge VAT on...?

The MD was trying to explain it in a far more complicated way than that, so I could be wrong. How are vat codes 6 and 7 defined in YOUR little world!?

A-Vic

Boy i need coffee before i even contemplate answering this thread

Bookworm55

I have no idea.

While you're at it though, could you work out the logic behind:

Zero-rated: Things which are not exempt, but attract VAT at 0%, eg books and children's clothes.

Raging Pineapples

I like this thread already! I did some research and I have an answer for you, so I've learned something!!

(puts on boff cap)

Exemption is deeper than zero rating and blocks out whole families of goods and services that would otherwise be subject to VAT, but have been given the all-clear by HMRC. However, conditions are imposed and businesses cannot reclaim VAT on any costs incurred in their providing of Exempt goods or services. (if they trade in both Exempt and Non-Exempt services, they have to apportion it I believe, for the proportion of their Input VAT that relates to Non-Exempt outputs).

A firm producing Zero-rated or Reduced-rated goods and services may still reclaim the VAT back as these items do still suffer VAT, but of course at 0% as you said.

So it seems like zero-rating is a tax-break for certain kinds of goods and services, whereas exemption is not so well-meaning.