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There are three types of supplies on which VAT is decided.
(1) Outside scope of VAT
(2) Exempt Supplies
(3) Taxable supplies
The book is saying that dividends and wages are outside scope of VAT so no effect of VAT.I know you already know about this. I gave background to make my question understandable.
My question is that how is wages a supply of good or service. Moreover, we even charge PAYE on wages so how it is saying that no effect of VAT?
Well, you’re right – it would be odd. However, I suppose there could have been tax rules which would have said that if you pay a salary of 1,000 net, you then have to pay VAT of 20% to HMRC. Instead, the employer deducts tax on behalf of the employer then also has to pay additional National Insurance contributions.
Just remember that dividends and wages have no VAT effect at all.
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