Do You Know Which Items are Zero-Rated for VAT?

30 January 2017, 16:04

Standard rate VAT is something most people are familiar with, even if they’re unsure what the current rate is (hint: the answer is 20%). But while this applies to lots of products, some are allocated a reduced VAT rate of 5%. That’s much better, but other items have no VAT charged on them at all. These are known as zero-rated VAT items.

If you sell things that qualify for a zero rate of VAT, you cannot charge your customers any VAT for buying those items. However, the sales must still be recorded in the usual manner, and reported as part of your VAT return.

Books are one of the best-known zero-rated items around today. Newspapers also qualify in this area. Children’s clothes are also included, as are shoes. Food and drink can be a grey area, though, since many foods do not have VAT added to them. However, it usually depends on the type of food available.

For example, most of the food you would buy in a supermarket would be zero-rated for VAT. So, if you bought a chicken, you wouldn’t have to pay any VAT on it. However, if you bought a hot ready-cooked chicken burger from a fast food outlet, you would pay VAT on it. Confectionery also has VAT added, probably because it’s not an essential; instead it is viewed as a luxury item.

Sometimes, there is a connection between one item and another. Let’s say, for instance, you go out and buy a cucumber. This is food that is grown for human consumption, so you won’t pay VAT on it. Now, let’s assume you go out and buy a packet of seeds to enable you to grow your own cucumbers at home. Those seeds are designed to produce food that is fit for your own consumption, so you won’t be charged VAT on those either.

As you can see, if you are about to register your business to pay VAT, it makes sense to explore the various rates to see which ones apply to your business. The official government website portal for VAT is very useful, and makes it easier to get to the information you need. Your accountant may also be able to provide more current information for you to use while working out how much VAT to charge on which items.

Do remember, though, that even the zero-rated items must be recorded when you are putting your latest VAT return together. You cannot leave out any sales that didn’t have VAT applied to them. Reading as much as you can about VAT before you start means you’ll find it much easier to ensure you get it right.