Facebook Twitter Linkedin Instagram Pinterest
Instant Quote
Call Me Back
zero rated VAT items

What’s the Difference between Zero Rated and Exempt Items?

21/12/2022tax , VAT

When you are associated with the business, you must have an essential awareness of VAT charging and how it changes from one particular product to another. Dealing with the changing state of VAT becomes confusing and complicated sometimes. People often enquire about what are Zero Rated VAT items and when is the right time to implement VAT exemption. Well, this totally depends on the type of product or services that you are selling. This will help you to decide about VAT charging. Moreover, you will find out that there are most items that are subject to the standard rate of VAT.

However, there are several categories in this regard that are outlined in this comprehensive guide for a basic understanding. When VAT is charged on services and products, a common standard rate is applied. However, the utilities are mostly related to the reduced rate of VAT. This is the case with gas and electric bills. Then comes the type zero-rated VAT and which is mostly applied to the child’s clothing and food items. There are some items that come under the category of VAT exemption as well. Moreover the most common among all the categories are zero rated and VAT exemption and often confused with being similar also. In order to avoid the VAT trap, we will delve into the details further.

 

Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help about Zero Rated VAT items whether you are running a small or large business.

 

What is Zero Rate? – Zero Rated VAT Items

This is imperative to understand how zero-rated VAT is different from VAT exemption. The best way to get the minute details is to compare them both. The products and services that come under zero-rated VAT are often confused that they are similar to VAT exemption. However, that is not the case at all. Such goods and services are still charged with VAT but the 0% rate is applied. Some common examples of zero-rate items included the following:

  • Footwear and clothing of children
  • Newspapers and magazines
  • The printing of brochures
  • The supply of water to your households
  • The equipment is made for disabled people.
  • The charity shops that aim to sell the donated goods
  • The service of advertisement for the purpose of charity
  • The long lease plan for building a new garage

 

What is a VAT Exemption?

The goods and services that come under the category of VAT exemption are not charged with usual tax implications. So there is no possibility to charge VAT on them. The common examples of the items that are excepted from VAT include the following:

  • Some of the services provided for finances
  • Parking of vehicles
  • Services provided for education
  • Cremation or burial
  • The charity events that are sponsored
  • Antique items
  • Gambling or betting on something
  • The sales that are arranged for selling the tickets

 

What is the Difference Between Zero Rates and VAT Exemption?

After getting the basic zero rates VAT and VAT exemption comparison, you must be wondering about what is the exact difference between the zero rate VAT and VAT exemption. If you are running a business that is charging VAT on its offered services or items at zero rates, it still has the benefit of being registered for VAT with HMRC. This is because of the fact that your business will have to deal with the output and input tax. See the following point for further understanding:

  • The input tax is referred to the kind of tax that a business pays when it buys services and products.
  • Now the business will charge tax on the sales of services and goods, this will be known as the output tax.
  • Businesses tend to collect the amount of VAT from their customers.
  • Finally, they pass the tax at the time of paying their VAT bill to HMRC

The effects of this procedure are important for the VAT return of a business. Now if your business is registered for VAT and it pays more tax for buying the products and services than it is able to collect from the sales, you have the opportunity to reclaim the gap of VAT payment between the paid and collected money.

On the other hand, sometimes more VAT is collected from the selling of products than the business actually paid at the time of buying products. In such a situation the business is liable to pay the difference to HMRC while doing the procedure of paying VAT bills.

 

The Bottom Line

Now that you have gathered a fair amount of information about Zero Rated VAT items, we can bring the discussion towards wrapping up. Several people consider zero-rated VAT and VAT exemption as similar rates of VAT. However, the businesses that charge zero rates on their products are still VAT registered. On the other hand, the VAT exemption means not saying any VAT bill at all. The type of your products will help you to decide the type of VAT rate you are going to charge. We hope these few minutes of reading will help you to develop a better understanding of Zero Rated VAT items and how can you make a choice that turns out to be the most beneficial to your unique circumstances.

 

Are you seeking professional help to know Zero Rated VAT items for a small business? Why not get help from the experts at the CruseBurke? Talk to us now and we will get back to you instantly. 

 

Disclaimer: All the information provided in this article on Zero Rated VAT items includes all the texts and graphics. It does not intend to disregard any of the professional advice.

    

Related post

Tax E-News – Budget Special
Tax E-News – Budget Special

16/03/2023Tax News and Tips

On 15 March 2023, Chancellor Jeremy Hunt presented his first Budget to Parliament and set out a plan to reduce inflation, grow the economy and get government debt falling all whilst avoiding a recession and tackling labour shortages. Below we set out some of the main points.   Cost Of Living Support Energy Costs The Energy Price Guarantee (EPG) brings a typical household energy bill in Great Britain down to around £2,500 per year. It has now been announced that the £2,500 EPG will be extended by 3 months to 30th June 2023, before increasing to £3,000 until the end of the EPG period on 31 March 2024. This extra 3 months at £2,500 will be worth £160 for a typical household. In Northern Ireland, a similar scheme operates, reducing typical household energy bills to around £2,109 per year. This has also been extended at the same rate until 30th June 2023. A new scheme for businesses, charities and the public sector has been confirmed. The Business Energy Bills Discount Scheme will run until 31 March 2024, giving non-domestic customers discounts on their gas and electricity bills. Childcare Additional support is being provided towards childcare costs in what the government describe as a ‘childcare revolution’. This includes 30 hours of free childcare for every child over the age of 9 months, with support being phased in until every eligible working parent of under 5s gets this support by September 2025. For Universal Credit claimants, the government will also pay childcare costs in advance rather than arrears, when parents move into work or increase their hours. The maximum they can claim will also be boosted to £951 for one child and £1,630 for two children, an increase of around 50%. Benefits and State Pension As confirmed at Autumn Statement 2022, the government will also increase benefits, including the State Pension, paid to recipients in the tax year to 5 April 2024 by 10.1%. This increase in the State Pension means that most pensioners will receive £10,600 in 2023/24, where they have 35 qualifying years. Individuals are being urged to check their contribution record on their Government Gateway account and consider making Class 3 voluntary National Insurance (NI) contributions in respect of missing qualifying years. Normally it is only possible to make voluntary NI contributions for the past 6 tax years, but until 31 July 2023, it is possible to go back as far as 6 April 2006 and pay additional contributions at the 2022/23 Class 3 rate of £15.85 per week. In-year Class 3 contributions for 2023/24 will increase to £17.45 per week.   Income Tax Increasing liabilities The personal allowance and basic rate band threshold are now frozen in place until 5 April 2028. As earnings increase, individuals will move into higher tax bands. This is often referred to as ‘fiscal drag’ because it will raise more tax without the government increasing income tax rates. The personal allowance continues to be partially and then fully withdrawn for higher earners, with £1 of personal allowance lost for every £2 of adjusted net income over £100,000.   Summary table of key income tax rates and allowances for the tax year to 5 April 2024 (2023/24) Band Taxable Income Tax rate in 2023/24 Other income Savings income Dividend income Personal allowance Up to £12,570 0% 0% 0% Basic rate £12,571 – £50,270 20% 20% 8.75% Higher rate £50,271 – £125,140 40% 40% 33.75% Additional rate Over £125,140 45% 45% 39.35% Other allowances Savings income continues to benefit from a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Dividend income attracts a £1,000 dividend allowance in 2023/24, down from the £2,000 allowance seen in previous years. These allowances are in addition to the personal allowance and attract a 0% rate of income tax. Scotland Individuals living in Scotland and classed as Scottish taxpayers have a slightly different banding system for ‘other income’ (non-savings, non-dividend) as follows: Band Taxable Income Tax rate in 2023/24     Other income Personal allowance Up to £12,570 0% Starter rate £12,571 – £14,732 19% Basic rate £14,733 – £25,688 20% Intermediate rate £25,689 – £43,622 21% Higher rate £43,623 – £125,140 42% Top rate Over £125,140 47% The application of income tax to savings and dividends income is the same as for the rest of the UK. Pension tax relief There was good news in the Budget for those saving in a personal pension. The current pension lifetime allowance (LTA) charge is being abolished from 6 April 2023. The LTA has caused some high earners, particularly doctors, to retire early as tax charges apply on crystallisation of pension funds if the LTA (currently £1,073,100) is exceeded. Individuals may be able to receive 25% of their pension savings as a tax-free lump sum when they become entitled to their pension benefits. This is currently capped at 25% of the LTA and going forwards, for most individuals, will remain capped at £268,275. Another pension limit increased by the Chancellor in the Budget was the pension Annual Allowance (AA) which increases from £40,000 to £60,000 from 6 April 2023. The AA applies to the combined pension input by the individual and, in the case of employees, their employer. Pension contributions in excess of the AA result in a tax charge on the individual, although they may take advantage of unused AA amounts from the 3 previous tax years. For those with high incomes, the AA is tapered. From 6 April 2023, where a taxpayer’s adjusted income exceeds £260,000 (increasing from £240,000), the AA is tapered by £1 for every £2 in excess of £260,000, down to a minimum of £10,000 (increasing from £4,000). The Money Purchase Annual Allowance (MPAA) replaces the AA when an individual starts to flexibly access a defined contribution pension scheme. The MPAA will increase from £4,000 to £10,000 on 6 April 2023. Note that an individual’s pension contributions can be very tax efficient depending on their level of income. The taxation rules …

Read more
low down on income tax
The Low-Down on Income Tax in the UK for Foreigners

31/01/2023tax , Tax Issues , Taxation

Being a resident of the UK when you come from some other country has become an inclination for many these days. You must get yourself prepare for a well-planned low down on income tax if you are among those people as it takes quite much to get settled with the new requirements that will bring in. You will have to take a conscious decision after understanding income tax and other relevant liabilities, to become a resident of the UK. Coming from a different origin and becoming a resident in the UK will be a complicated process initially, this might require you a professional to make you understand the tax affairs and how HMRC is given a slim margin in this matter. If you are the one, you are on the right page and we have got you covered with everything that you need to know about the low down on income tax. In this comprehensive guide, we have compiled facts that will help you to consider the needful before moving to the UK. Because, unlike the people who are originally from the UK and grew up here, the climate itself becomes challenging for other people who are trying to get settled. So if you come under the category of foreigners who are also making money from outside the UK, this post is the right click for you. The discussion will cover income tax, why foreigners need to pay tax in the UK, how will double taxation agreement help, and what tax you will be liable for after becoming a resident in the UK. Let us kickstart the discussion.   The Low Down on the Income Tax for People Originated from Outside the UK When people who originated from some other country are new to the UK, the tax affairs and relevant liabilities become a confusing challenge to them. Let us take the instance of an individual who does not belong to the UK originally and can not stand the extreme weather, this makes them decide to witch the country and settle there. Now their status makes them a foreigner in the new country. So under the tax rules, a foreigner is referred to as someone who is actually earning outside of the UK origin. Now according to the tax rules in the UK, any individual whether they are of UK origin or not is liable to pay the tax if their earnings are more than the amount of personal allowance which is £12,570. The income tax will cover the savings interest, benefits, and pension as well. Your band will depend on the amount of money you make in a certain period.   What is the Reason for Paying Taxes if You have Just Moved in? When you originated from a different place than the UK, and you are an employee of a limited company, this will make you pay tax through the system of PAYE. In the case of being a self-employed individual in the UK, you will have to get register for self-assessment tax returns. This is because of the requirement of filing tax returns and paying income tax according to the law of tax in the UK. Many of you must be wondering about the procedure that makes you a UK resident. Well when you are in the UK and meet any of the following requirements, you will be considered an automatic resident here. You are working as a full-time employee for a period of two years or more than this in the UK. You have a home in the UK and you have stayed here for a period of one month in the UK tax year. You have stayed for a 183 days period in the UK. Moreover, if any of the above-mentioned requirements are met, you are a resident of the UK and you will have to pay tax on any kind of income that you are earning from the UK. Also from any other country. Only then it is possible to be entitled to social benefits, pension, and health care. If you are under the category of non-resident, you will only pay tax on the income coming from the UK. Moreover, British citizenship does not come with being a UK resident.   How can a Double Taxation Agreement Help? There is no doubt that if the tax case of a new resident is not handled well, sometimes they end up paying double tax. Because this will make them liable for paying taxes in their native country as well as in the UK. The good news here is that you have the support of a double taxation agreement in the UK with many countries. This will protect you from being taxed twice. This depends on the unique circumstance that will decide in which country you will pay the tax. This is imperative to keep yourself protected from such scenarios and take conscious decisions.   The Bottom Line Now that you have gathered a fair amount of information about the low down on income tax, we can bring the discussion towards wrapping up. It is imperative to have a basic awareness of the income tax low down when you are in the scenario of being a new resident of the UK. Otherwise, you will have to deal with the tax liabilities in your native country as well as the UK in the future. So keep conscious awareness about the low down on income tax for your own benefit.

Read more

Need Help with Accounting? We’ve Got You Covered!

Running a business is hard. Let us take care of your accounting so you can focus on what matters most. Our services include:

  • VAT Returns
  • Payroll
  • Bookkeeping
  • Company Formation
  • Self Assessment Tax Returns
  • CIS Returns
Get an Instant Quote