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.

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