Q: I am on the VAT flat-rate scheme and have received a substantial insurance payout for damage to the trading premises. Should this exempt income be included in the flat-rate scheme turnover?
A. Compensation paid out as a result of an insurance claim is not exempt from VAT, but is outside the scope of VAT because it is not a consideration for a supply, being recompense for loss.
Although you are correct in that exempt income is included in the flat-rate scheme, outside the scope income is excluded. Paragraph 6.3 Notice 733 refers.
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