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Vat Return Query in Xero

  • Member PM.Dip
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  • # 117833

I have a client who has just taken on a new contract providing before & after school childcare.  His accountant tells me that this income is exempt from vat. My client also has other income that is charged at 20% vat.

When I enter the exempt from vat income invoices in Xero I have used the vat exempt tax code.  I am now about to submit his latest vat return and find that the box 6 figure is including the exempt from vat income, so the box 1 figure is not 20% of the box 6 figure, it is significantly less.  I thought the vat return box 6 figure is not supposed to include exempt goods or services in your taxable turnover for VAT periods. I also know that it is important that the box 1 figure is 20% of the box 6 figure and that HMRC use this as a check.

Please could anyone with experience of Xero please advise if I should be using a different tax code for this exempt from vat income?

  • Fellow PM.Dip
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  • # 117837

CatherineB said:

I have a client who has just taken on a new contract providing before & after school childcare.  His accountant tells me that this income is exempt from vat. My client also has other income that is charged at 20% vat.

When I enter the exempt from vat income invoices in Xero I have used the vat exempt tax code.  I am now about to submit his latest vat return and find that the box 6 figure is including the exempt from vat income, so the box 1 figure is not 20% of the box 6 figure, it is significantly less.  I thought the vat return box 6 figure is not supposed to include exempt goods or services in your taxable turnover for VAT periods. I also know that it is important that the box 1 figure is 20% of the box 6 figure and that HMRC use this as a check.

Please could anyone with experience of Xero please advise if I should be using a different tax code for this exempt from vat income?


If the income is outside the scope of VAT (not exempt - exempt is used for purchases generally), use "No VAT" in Xero, if none of this income is to be included in the VAT return, or you could use "Zero Rated Income", if it does need to be included in the VAT retrun.



Edited at 20 Jun 2019 05:57 AM GMT

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  • # 117844

Hi Catherine

You have used the correct VAT code and the Xero VAT report is also correct.

The only issue that I think needs clarification is Box 6 of the VAT return as this should include exempt supplies.

Box 1 need not be 20% of box 6.

See below (per HMRC)

Box 6 total value of sales and all other outputs excluding any VAT

Show the total value of all your business sales and other specific outputs but leave out any VAT. Some examples are:

  • zero rate, reduced rate and exempt supplies
  • fuel scale charges (see Motoring expenses (VAT Notice 700/64))
  • exports
  • supplies to other EU member states (that is any figure entered in box 8)
  • supplies of installed or assembled goods in the UK where the overseas supplier registers for VAT here
  • distance sales to the UK which are above the UK distance selling threshold or, if below the threshold the overseas supplier opts to register for VAT in the UK
  • reverse charge transactions (see paragraph 4.6)
  • supplies which are outside the scope of UK VAT as described in Place of supply of services (VAT Notice 741A)
  • deposits that an invoice has been issued for

Hope that solves your problem

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