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In the above mock exam (Orchard Bistro), I am having problems with the VAT return. The given answer to Part 7 of the return "Total value of purchases, excluding VAT" is £635.52 more than I keep making it. Yet this amounts to the total of exempt VAT items (the paper states to use the exempt code) - which I believe are not included in the VAT returns (according to my coursework and sample VAT return)? Can someone confirm what is correct?
Edited at 10 Sep 2011 06:44 PM GMT
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Hi Jules,
VAT exempt transactions are included on the VAT Return (i.e. T2 transactions in Sage) T0 transactions are also included, it is only T9 transactions that are not included. These are transactions outside the scope of VAT.
Hope this helps :-)
Pauline
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Thanks Pauline - I'll have to raise this with my Tutor as my coursework definately states exempt items (ie: purchases) are not included in the part 7 Purchases total of the VAT return. I'll also have to amend the SAGE setup too, as this is not including exempt items in the return, hence my confusion with the mock answer!!! lol 
Edited at 11 Sep 2011 12:55 PM GMT
Edited at 11 Sep 2011 02:10 PM GMT
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Apologies if this is a silly suggestion but have you looked at your petty cash items?
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Thanks Bookworm, but the missing amount is definitely the cost of the two purchases (exempt VAT). The VAT summary reports confirm what amounts have been included in the total. My query is whether the purchase cost of exempt items are included in the total cost of purchases!
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Hi Jules,
Let me know what your tutor says :-)
Pauline
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Hi Jules,
I've come across this same problem tonight, I'm relieved to find your post before I started tearing my hair out.
I've checked my course manuals both computerised and manual and your right is clearly says 'include zero rated (T0) but exclude Exempt (T2)'
Let me know what your tutor says. As yes we can change the parameters on the software but there is something amiss here.
Haze
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What were the two purchases?
From HMRC website (http://www.hmrc.gov.uk/vat/managing/returns-accounts/completing-returns.htm)
Box 6: your total sales excluding VAT
Enter the total figure for your sales (excluding VAT) for the period, that is, the sales on which you charged the VAT you put in box 1. Additionally, you should also include:
- any zero-rated and exempt sales or other supplies you made
- any amount you put in box 8
- goods or services you have supplied that are subject to the reverse charge
- gold or services that you have purchased that are subject to the reverse charge
- exports outside the EU
Don't include:
- o loans, dividends and gifts of money
- o insurance claims
Box 7: your total purchases excluding VAT
Enter the total figure for your purchases (excluding VAT) for the period, including:
- the purchases on which you paid the VAT you put in box 4
- anything you bought that the reverse charge procedure applies to
- any amount you put in box 9
Don't include:
- expenses like salaries and taxes
- anything outside the scope of VAT like vehicle licences, MOT certificates and local authority rates
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Hi Geoff,
The items in questions were Postage and Rent, the mock paper described them as ‘Exempt’ rather than the description ‘Zero’ which they had used earlier in the paper describing food items. Which is why I and probably Jules marked them as T2.
Looking in my course work Stamps have been marked as T0 so perhaps that is where we went wrong.
Question is, is the mock paper confusing by describing it as ‘Exempt’? or are they testing our knowledge on what is exempt and what is zero?
Hazel
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Well ladies and gentlemen! My tutor (and accountant) & HMRC confirm that VAT exempt purchases are NOT recorded on the VAT return box 7 (total purchases). So it would seem that the confusion is being caused by the Orchard Bistro Mock paper as it instructs us to enter postage and rent as exempt purchases. Which means that these purchase totals are NOT recorded on the VAT return, yet the MOCK answer does include them. So..... one assumes that the instruction to input these two purchases as "exempt" is actually incorrect.  Which I believe is what other forum users were suggesting. lol
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Interesting reading this topic on the forum about exempt items (T2) on a VAT return as I have always been taught to include them and just checking through the Sage software the line below is quoted in their help section.
Exempt items are goods on which no VAT is paid or charged at present but still need to be recorded on the VAT Return
There is the option to exclude them (T2) in the configuration on Sage for the tax codes but surely it would come under the heading of 'all other inputs'.
I will keep an eye on this topic and see what the outcome is.
Lesley
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Like Lesley I have always included T2 exempt transactions in the VAT Return. :-)
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Having checked with HMRC and a VAT inspector in the past (because I also was unsure), I was advised very clearly that exempt transactions (T2 in Sage) should be included in the Box 7 Purchases of the VAT Return. So, insurance, postage, bank charges, etc, are all included in the net figure in Box 7. Only things like interest paid/received, dividends, penalties, etc, are excluded from the VAT Return (T9 in Sage). BTW, rent is not necessarily exempt, but depends on the status of the landlord. Hope this helps.
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Mmmmmm! Seemed to have stirred up a bit of a hornets nest with this query! I do apologise.
However, one matter has been clarified by books/tutor/accountants: - apparently (!) postage is not exempt from VAT, but zero-rated. This point alone would suggest the mock exam was incorrect in asking us to post postage as exempt? Perhaps James can put an end to the matter by given us the ICB verdict??? 
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Jules999said:
“Mmmmmm! Seemed to have stirred up a bit of a hornets nest with this query! I do apologise.
However, one matter has been clarified by books/tutor/accountants: - apparently (!) postage is not exempt from VAT, but zero-rated. This point alone would suggest the mock exam was incorrect in asking us to post postage as exempt? Perhaps James can put an end to the matter by given us the ICB verdict??? ”
I think I'm about to make matters worse!
It is entirely probably that I'm mistaken but both my manuals and HMRC http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm#7 seem to indicate postage stamps are exempt.
James, please settle this for us
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Looks like I missed a couple of answers.
If you follow this link it will help you decide what is zero rated and what is exempt
http://www.hmrc.gov.uk/vat/forms-rates/rates/goods-services.htm#7
Do bear in mind - even though you may not pay VAT on stamps when you buy them, if you charge your client postage then you have to add VAT (assuming you are VAT registered).
Geoff
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There is much confusion over this topic and the use of VAT codes in Sage.
The T2 code is used for VAT exempt transactions but this code is an EU code and is used for triangulation by Sage. The T2 code should ONLY be used for EU Imports and Exports which are Exempt from VAT and these are the ONLY exempt transactions which are reported on the VAT Return.
Where you are talking about UK VAT exempt items, you would use the T9 code in Sage and these items do not get reported on the VAT Return.
However, I believe that there may be some confusion in the question which has brought this debate about. The use of the word 'Exempt' (if my students are reading the question correctly) should actually be 'Zero Rated'. Postage stamps are ZERO RATED items and you would use T0 in Sage for these transactions.
Insurance, on the other hand is an EXEMPT item and you should use the code T9, in Sage, for these items.
Neither postage stamps nor insurance transactions should appear on the VAT Return.
I hope this helps to clear the confusion..... or have I just made it worse?
Caroline (HND Accs., MICB (Comp))
Business Courses Tutor - Openstudy College
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Hi Caz
Please make sure your replies are accurate especially if you are putting tutoring credentials in your signature.
I have below just pasted in from the help funtion within sage the Tax codes
- T0, zero rated sales and goods for resale
- T1, standard rate sales and goods for resale
- T2, exempt transactions for sales and goods for resale
- T3, reduced rate sales and goods for resale
- T4, sales of goods to VAT registered customers in the EC
- T7, zero rated purchases of goods from suppliers in the EC
- T8, standard rate purchases of goods from suppliers in the EC
- T9, transactions not involving VAT
- T10, zero rated goods for non-resale
- T11, standard rate goods for non-resale
- T12, reduced rate goods for non-resale.
- T22, sales of services to customers in EC
- T23, zero-rated purchases of services from suppliers in EC
- T24, standard-rated purchases of services from suppliers in EC
Please not T2 is for Exempt transactions and has nothing to do with EC Sales Lists which is where you would declare Triangulation I have below post excerts from the sage help on this issue.
The EC Sales Lists totals are the net amounts of SI minus SC transactions using the T4, T7, T8, T22, T23, T24 tax codes for the selected period.
6. If a transaction becomes triangulated select the Triangulated check box against that transaction. To save changes to triangulation setting, click Save and then Close to return to the EC Sales List window.
T9 is the tax code to use for items that are outside the scope of VAT i.e. wages, prepayments, accruals. depreciation etc etc.
Kind regards
Stuart
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At last, someone who actually understands VAT and knows how to use Sage! Thanks Stuart. I find it extremely disconcerting that tutors and others responsible for training and testing on the subject do not seem to have the necessary knowledge for the job. Even though VAT is always going to be subject to some interpretation, I feel strongly that tutors have a responsibility to keep up-to-date and understand what they are teaching.
I have been a bookkeeper for some 20 years, having taken evening classes and the RSA exams which, frustratingly, the ICB do not recognise, but the first rule we were taught was to make sure that we understood the rules not only of bookkeeping, but of VAT and other compliance issues and to keep up-to-date. I am a student member of ICB with the sole intention of having qualifications that are recognised in today's market, but I am beginning to wonder if it is worth the time and expense when something as simple as what VAT Exempt means is being mishandled by tutors and others.
Sorry to rant ... I feel much better now
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I'm not sure these repsonses have helped Jules or I correctly understand what the ICB test papers expect from our answers, as there seems to be too much debate it URGENTLY requires an ICB member of staff to step in and resolve.
The subject could roll and roll however what is important is how ICB see this, as they will be the ones marking our test papers.
To summarize.
The Orchard Mock paper answers listed Rent and Postage as T2, however indicate that the totals value should appear in box 7 on the VAT return.
The description used in the paper to desribe these are 'Exempt' and not 'Zero' or 'Non VATable' as other descriptions used in the paper.
Our course work tells us
T2 should be omitted from the Tax return
It also says that rent should be recorded as T9 and postage as T0
Where T0 is included in the VAT return and T9 is not included in the VAT return.
As the same problem has come up in the actual final exam it is in my mind VITAL that ICB advise on their position on this.
We have so far been told to mark these items as T0 and T9, as our course work suggests, however this would be wrong if ICBs mock paper is to be followed. Equally if T2 is to be used, on speaking to some friendly accountants this would be wrong as T0 should be used for all.
Edited at 18 Sep 2011 11:41 AM GMT
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I agree with Hazel, it needs James to step in here and tell us what the ICB expect. Having just achieved 100% in my Level II computerised, I used T2 for exempt items and T0 for zero-rated items and included both on the VAT return. T2 for exempt items included postage which is exempt, not zero-rated.
| Postage stamps - UK and Isle of Man (unused stamps only) |
exempt |
(Taken from HMRC VAT Notice 701/8)
There is also this copied from HMRC website:-
Exempt goods and services
There are some goods and services that are exempt from VAT. Exempt goods and services are not taxable for VAT, so if you supply them, then:
- you don't charge any VAT on them
- you don't include them in your VAT accounts
If the ICB exams require T2 items to be included in the VAT return then they should be included. I don't always find the HMRC website very helpful as they will say one thing on one page and seemingly contradict it if you look at another... (same if you ring them up....depends on who you speak to!).
I did British Horse Society exams "x" years ago...and feel that this is the same sort of scenario....you learned the way they wanted you to in order to pass the exams, and then you learned to do it in the real world!
In addition to Stuart's list of T codes in Sage, I also use T5 for reduced rate purchases (such as gas and electricity) and T20 for reverse charges.
Hopefully James will step in tomorrow and let us know what the ICB require!
Pauline
Edited at 18 Sep 2011 12:24 PM GMT
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Thanks hazeybabes!
You have explained our position very succinctly and much better than I could have. I have now had to halt my Level 2 exam until James or ICB confirm the Institute's standing on this matter, hopefully tomorrow.
I am now on tender-hooks, bored and frustrated as all I want to do is get on with it!!
In great anticipation!
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Hi Jules.
As I said before what matters is how ICB are seeing the subject and rightly or wrongly (the debate) continues but it's not looking like James or anyone from ICB will respond to this string as it's gone on over a week now and even today they've responded to others. So I've deceided to answer the exam based on the mock example.
If I do not score correctly based on this I'll be cross based on Paulines last comment.
I hope that helps you too. I'll open a new forum on this point though as it does need to get resolved.
Good luck
Hazel
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Hi Hazel
I just wanted to reassure you that all our students who complete this course and the exam use T2 for exempt (stamps included in this are they are exempt and not zero rated) and it is included in the VAT return.
Good luck with your final exam and I hope that the ICB will soon respond to this thread.
Kind regards
Lesley Smith
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Hi there
Much humble pie for the errors in my previous post.
Older versions of Sage have the 'EU code' box ticked (by default) on code T2, when you install the software, and this needs to be edited if you have this on your software and are going to use the T2 code for your EXEMPT SALES.
I think the confusion is coming from the fact that PURCHASES of Stamps and UK parcel postage etc. are EXEMPT items (not Zero rated as I said previously - apologies for that mistake) and therefore beyond the scope of the VAT Return and these items should NOT be included in the VAT Return, I use T9 for these items.
However on the SALES side, if you are charging your customers for postage and packaging then you would be charging this at the SAME RATE as the goods being delivered. So, if you charge VAT at the Standard Rate of tax (20%) on the goods you are delivering to the customer, then you charge the Standard Rate of VAT on the delivery element of the invoice and this would be included in the VAT Return (even if it's just the cost of stamps). My understanding of this would be that using the T1 code on these elements of delivery charges would be sufficient since VAT is being charged at the standard rate and not exempt rate, on the delivery part of the invoice.
If the items being delivered were EXEMPT themselves, then you would be using the T2 code to enter your sales transactions anyway since they would be exempt from VAT but still have to be recorded on the VAT Return. You would then use this code for the delivery charge too.
Having not actually seen the question being discussed but having had a few queries from students regarding this, I have included the information from HMRC website regarding the recording of Exempt items on the VAT Return. Note 2.3 is the one I think is most relevant here.:
HMRC Reference:Notice 700/24 (April 2003)
2. Delivered goods
2.1 How do I work out the VAT treatment for delivered goods?
A supply of goods may involve delivery to the customer. The way any delivery charge is treated for VAT purposes depends on the circumstances in which the goods are supplied.
2.2 What if I deliver goods to my customers but make no additional charge?
If delivery is free, or the cost is built into the normal price, VAT is accounted for on the goods in the normal way based on the liability of the goods themselves. This applies whether or not delivery is required under the contract.
2.3 What if I have to deliver the goods and I make a charge for this?
The important test is whether delivery is included in the contract. You are making a single supply of delivered goods if, under the contract, you have to deliver the goods to a place specified by the customer. This might include the customer’s:
- own address;
- friends or relatives; or
- their own customers.
The position is not affected by whether the charge you make for delivery is separately itemised or invoiced to the customer. In either case there is a single supply for which the VAT liability is based on the liability of the goods being delivered. For example, any element of the price attributed to the doorstep delivery of milk and newspapers will also be zero rated. On the other hand any element attributed to the delivery of standard rated mail order goods will be standard rated.
I do hope this is more helpful now and my apologies for my earlier, rather hastily posted, comments.
Caroline Barbour (HND Accs., MICB(Comp))
Business Tutor - Openstudy College
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Hazel,
I agree with you entirely - I am following what the ICB have wanted on the previous Mock exam.
I am disappointed that as yet no reply from ICB has been posted on the forum - I did email them directly yesterday about it, but as yet have received no reply.
Anyhow, I've made the decision, I've printed off my exam answers and will be posting them tomorrow. Like you, I just wait for the response from ICB!!! Good luck, hopefully we'll be sharing some good news soon!!! lol
Jules
Edited at 19 Sep 2011 03:38 PM GMT
Edited at 19 Sep 2011 07:13 PM GMT
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Hi Jules, Hazel,
You could always ring the ICB...you can ask for James directly ...put your minds at rest?
Pauline
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I have had a further query regarding the exempt items in this mock paper.:
This extract comes from HMRC Website http://www.hmrc.gov.uk/vat/forms-rates/rates/trade-sectors.htm#5
"Normally, property rental is exempt from VAT. However, landlords may be able to waive this exemption and opt to tax a property. Doing so enables the landlord to reclaim VAT on certain expenditure related to that property."
Therefore, unless the landlord has opted to charge VAT on the rental payments, RENT is NOT taxable and is EXEMPT and outside the scope of the VAT Return and the Sage code T9 should be used for these types of transaction.
If the examination question requires VAT to be charged on these items, then it should state that VAT is chargeable; from the queries I have received the rent has to be treated as Exempt but it should therefore NOT appear on the VAT Return at all.
Postage stamps are also EXEMPT outside the scope of the VAT Return and again, the code T9 should be used for these (not T0 or T2 - unless these charges are for delivery of goods which is re-charged to the Customer - in this case the delivery charge is VATable at the SAME RATE as the goods being delivered).
If the mock paper includes rent and postage expenses, as Exempt items, in the VAT Return then this is wrong, according to VAT Regulations from HMRC.
Caroline Barbour (HND Accs., MICB (Comp))
Business Tutor - Openstudy College
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Hi
Please see below response from our Examining Team here at the ICB:
In a VAT registered business, sales and purchases of all goods and services except those deemed non-VATable, such as wages, loans, bank transfers, etc., must be included in the VAT Return. This means that even if they are zero-rated or exempt, so no VAT is actually due, their value must still be included in box 6 or 7. For those using Sage, T2, which is the tax code for exempt items is, by default, marked for inclusion in the VAT Return.
For those who have access to the Sage support website, Article 11217 explains all about tax codes, their use and how they affect the VAT Return. This specifically states that the net figure of a T2 sale is added to box 6 and the net figure of a T2 purchase is added to box 7. The only tax code that Sage does not include in the VAT Return is T9, which is the default non-VATable code.
I hope this clarifies the situation.
Allison
ICB
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Hi Allison
Sorry to harp on about this but I have to say that not all exempt items appear on the VAT Return, there are those which are outside the scope of the VAT Return and should not appear on it at all.
The question which caused all this fuss in the first place is this table of expenses from one of the level 2 mock exams:
Task 8 – Enter and correct the cash payments
As the Orchard Bistro receives a lot of cash, it also pays a number of its bills in cash to save bank charges.
Required:
i) Post the following cash payments into the accounts:
Date Description Amount (inc VAT) VAT rate
03/04/10 Postage 35.52 Exempt
06/04/10 Rent 500.00 Exempt
20/04/10 Petrol 20.00 Standard
23/04/10 Gas 45.00 5%
30/04/10 Wages payable 2878.00 Non VATable
The Postage, if it is just an office expense or is for Direct Mailing is Exempt and beyond the scope of the VAT Return. If the postage relates to deliveries of supplies to customers in UK, EU and overseas, then it is required to be disclosed on the VAT Return.
(The question does not make this distinction clear).
However, the Rent amount should quite definitely NOT be included in the VAT Return just the same as with Bank Charges and Bank Interest. None of these items should appear on the VAT Return.
The ONLY time rent appears on the VAT Return is if the Landlord has opted into a VAT scheme and is charging you VAT on your rent. In this case the rent would NOT BE 'EXEMPT'.
I have been actively involved in accounts and payroll for 27 years and I do know what I'm talking about, however, if there are still some non-believers out there (including ICB staff) I would strongly urge you to check this out for yourself and get it from the horse's mouth.
The lovely people at the VAT Office will be happy to enlighten you on this subject and you can contact them on the HMRC Helpline number 0845 010 8500.
The answer sheet for the above question includes both rent and postage in the VAT Return and, while the postage could technically be included (although not enough information is given to the students regarding the postage for them to make up their minds about this one) but the rent should NOT be included in the VAT Return. This is an expense item, without a doubt, and is not classed as a Purchase. Therefore, aluding to previous posts, T2 in Sage is not the code to use with Rent, you should use T9 to exclude it from the return the same way you would with Bank Charges and Bank Interest.
I really do hope that you check into this very thoroughly because I will have to contine to teach my students the CORRECT way to deal with these items in the VAT Return. But it is unfair on them when they are marked wrong even though they are right.
Don't take my word for it, call the VAT helpline and ask the questions.
Caroline Barbour
Business Tutor - Openstudy College
Edited at 23 Sep 2011 09:48 AM GMT
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Edited at 02 Oct 2011 06:27 PM GMT
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Sally.
May I suggest that you tone down your postings?
There may be an unaswered question but posting as you have done so late on a Friday night is not really appropriate nor, in my opinion, is it professional. It is available for all and sundry to see and does not send out the right message.
Do bear in mind that staff at the ICB do not just spend their time reading forum postings but have many other things to do.
It may. for all any of us know, be the case that the answer is not yet available. I am sure this is in hand.
Perhaps you could/should have sent an email directly to the office if you are particularly concerned.
Geoff Smith
Member ICB Advisory Council
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Caz and all
Just a thought - (ive left a longer reply on the other post relating to this)
Exempt and Outside Scope have different meanings. Exempt still goes on the VAT return.
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Edited at 02 Oct 2011 06:27 PM GMT
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Dear Geoff
Whilst I do agree with you, Geoff, I do also feel some sympathy for the contributors who are getting more and more confused by the responses. Most particularly, the lady who is a tutor at the Open College, who does not seem to understand the difference between Exempt and Outside the Scope of VAT. So I can understand their frustration. But, you are right, they should have contacted ICB in a more direct and private manner to get a quick response from ICB. On the other hand, the forum has been set-up by ICB for people to seek help and advice, so it is important that ICB monitors and responds to such important questions quickly.
Is also important that ICB makes sure that people and establishments setting themselves up as ICB accredited trainers actually understand the subject they are teaching.
Perhaps this is already in hand?
Thanks for taking the time to read this.
Pauline Henson
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Easy Tigers.
Please can we all bear in mind that eveybody who posts on this forum is only human and as such we can be fallable.
Pauline I can assure you the ICB does have in place structures for regulating those who wish to be accredited trainers and can also state that the educational side of the ICB is being closely scrutinised as we speak.
I do agree it can be frustrating when the ICB do not respond to queries howver I can assure everyone that as a regional chairman (of the premier ICB region!!  ) I have a lot of contact with Ami, James and Co and they are all extremely busy working on various projects one such project is the bookkeepers summit.
I do have to agree with spme of the responses in that this could have been dealt with more quickly if someone had just picked up a telephone and called the ICB and then they could have posted the ICB's position on the question on the forum for us all.
I will try and speak to the technical helpline on Monday and gain a response from them which I will duly post.
I would ask eveybody to take deep breath before anything starts getting heated.
Warmest regards
Stuart
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Sally - I do not believe that I have made a personal "attack" on you or anyone else, nor have I cast any aspersions. If you wish to have clarification of my thoughts then I will happily add that the tone of your posting, in large bold text and in red would, in my opinion, be inappropriate at any time of day. Additionally it is clearly an "attack" on Alison personally.
I do understand that people work at all hours of the day - that is relevant because Alison does not work in the middle of the night but would hopefully respond to an email at a time which is appropriate for her and for you to be able to read at a time which is appropriate for you.
Additionally I have followed the forum - not only this one but I subscribe to each and every one - and on this particular thread have made two postings. I didn't make any further postings of opinion because I got to the stage where I wasn't too sure of the answer which was being sought - others had dissenting views as well.
Having been involved in accounts since long before VAT was introduced I do have wide experience of VAT and VAT inspections, as you and everyone else are discovering it is not clear cut.
I have a colleague who is a VAT lecturer, he was asked a question on another forum and gave the same answer as I would have given. He was corrected by a member, he called HMRC and was told that he was correct, indeed the HMRC web site gave the same information and he responded to the person raising the question and was then told that the regulations had changed. He reverted to HMRC who admitted that their web site was not up to date!
It may be that the answer is still being clarified, HMRC do not move mountains in the same way as the ICB are expected to. Perhaps the route of debate should be between course provider and the ICB. And if it is not resolved in time for an exam then I have no doubt that the ICB would consider any representation made if marks are lost due to a difference in opinion.
Pauline - thank you for agreeing with the suggestion that an email may have been more appropriate. I am sure that the ICB do carry out effective checking but assessment will be ongoing, I obviously am not able to comment on any particular provider.
The ICB is going through a particularly difficult period at the moment -M day and the conference are just two areas where resources are stretched. Maybe more staff could be employed - but that would come at a cost to members. The forum is a good source of information and I am sure that many members have found what they are looking for. It has to be used properly because it is a professional forum and not a social network and also postings are open for all to see.
There is a meeting of the advisory council later this week - if I am able whilst at the ICB offices to raise any concerns I will do so. My email address is info{at}accountslegal.co.uk - I make no guarantees but will do my best.
Geoff Smith
Member ICB Advisory Council
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Hi All
It is getting a bit confusing now and myself and Julius have recently written to HMRC for some proper clarification on the treatment of Postage & Rent in the question.
However, I would advise all my students (and anyone else involved in this debate) to enter these amounts in Box 7 of the VAT Return, as 'Exempt' (T2 in Sage) as stated in the question, for the time being.
I sent my letter on Wednesday last week but I don't expect to hear from HMRC for at least two weeks (although that might even be a bit optimistic). When we do get replies, we'll compare them and take the answers as the Gospel on the subject.
VAT is not an easy area unless you're a tax specialist but, since the items are marked as 'Exempt' and, according to HMRC now all 'Exempt' items should be recorded on the VAT Return, then it is adviseable to do so in order to gain the marks for that part of the question.
I hope this can put the whole thing to bed for just now and allow the students who are sitting these exams to get on with the rest of their studies in the knowledge that they know how to treat these items for examination purposes.
PS: A note to my own students, please try to be courteous and professional when posting comments on the forums, even if you feel someone has been discourteous to you. Remember your comments can be read by anyone subscribing to the forums, thank you all.
Caroline Barbour (HND Accs., MICB(Comp))
Business Tutor - Openstudy College
Edited at 02 Oct 2011 05:59 PM GMT
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Hi Julius and everyone else,
Well, I got an email reply from the VAT Office and am choking on the humle pie in my sandwiches!!
This is the reply I got and, while it doesn't specifically mention 'Rent', it does answer the question related to whether or not Exempt items are included in the VAT Return:
Dear Madam,
Thank you for your enquiry dated 28 September 2011.
The value of Exempt supplies should be included in box 7 .
Public Notice 700/12 (Filling in your VAT return) explains how to fill in your returns and also tells you about the main things to check when filling them in.
If you have any further queries regarding this matter, please submit your enquiry via our website, ensuring that you quote the case reference number at the top of this reply. Enquiries can be submitted by following the appropriate links on the VAT 'Contact us' page at www.hmrc.gov.uk
Yours sincerely
Simon Legg
Written Enquiries Officer
Value Added Tax (VAT) Written Enquiries Team
4th Floor Alexander House
21 Victoria Avenue
Southend-on-Sea
Essex
SS99 1BD
Contact telephone number (direct line): 01702 361713
So, in an exam question, if an item is marked as being 'Exempt' (regardless of what the item is) it needs to be recorded in Box 7 of the VAT Return (T2 code in Sage).
So please excuse me while I go and put on sack-cloth and ashes and beat myself senseless with a toothpick and a set of beautifully carved ivory chopsticks before flushing my brain down the loo!!
Will I ever recover, I ask myself??
Caroline Barbour (HND Accs.,MICB(Comp))
Business Tutor - Openstudy College
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I feel your pain Caz, and admire your courage for being so upfront about it. Onwards and upwards, as they say!
Pauline
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