If you have registered for VAT, you will find a range of goods and services that are exempted from the VAT. A business that solely deals with such goods and services will be VAT exempt. Let’s find out more about what is VAT Exempt in the UK and what goods and services are there on which you don’t need to pay VAT.
So before we delve deep into the details, let’s kick off with what is VAT exempt in the UK.
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What is VAT Exempt in the UK?
Almost all goods or services incur VAT ( standard VAT rate 20%) over their original sale price in the UK. Still, there are some essential items where you don’t need to pay VAT.
If your business trades all the goods and services where no VAT is charged, then it will be classed as VAT Exempt business and such businesses don’t need to register for VAT. So, if you don’t pay VAT, you can’t reclaim it on any purchases or expenses.
Remember, if you are a VAT-registered business and pay VAT on goods that are used to manufacture exempt supplies, then you’d be partly exempt from the VAT.
What are the Exempt Goods and Services?
According to HMRC, there are some goods and services that are exempt from VAT. These include:
- Education, sporting and training
- Insurance, finance and credit
- Fundraising events by charities
- Some medical treatments
- Subscription to membership organisations
- Leasing, letting and selling of commercial lands and buildings ( it can be waived)
For the VAT exempted items and services, you don’t need to pay tax. It implies that:
- Sales of exempt goods or services should not be included in your VAT taxable turnover
- Against the purchase of exempt items, you can reclaim VAT
- You are not required to add VAT to the price of any exempt items that you sell
- No VAT records are necessary for VAT-exempt sales
Note: In both zero-rated and VAT exempt items, no additional charge (VAT) is included in the original sale price of the product and services. However, unlike exempt products, zero-rated items are taxable and are taken into account for your taxable turnover. And zero-rated products need to be recorded in the VAT accounts.
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What VAT Exemption is available for Businesses?
If you are a business owner, trading solely the goods and services that are VAT exempted, you are not required to:
- Register for VAT
- Charge VAT on your sales
- Reclaim VAT incurred on expenses or purchases
- Keep VAT records
- Submit VAT returns
VAT Partial Exemption for Businesses
Your business will be classified as partially exempt if your business is charged VAT for the purchases that are associated with exempt supplies (exempt input tax). Typically, you can’t reclaim VAT on exempt input tax., but still if the amount is below a certain threshold, you can recover it in full.
On the other hand, you can’t recover VAT on the amount you spent on those products and services that are not for business use. If you are a partly exempt business, you need to split the VAT accordingly for the goods and services that are both used for business and non-business purposes. In such a case, a partial exemption method would be used to reclaim business VAT.
In this instance, you need to keep a record of exempt sales and the VAT that you need to recover on the products and services used for business.
List of VAT Exempt Items
Here is a general list of some items and services that are VAT exempted:
- Most food and drinks (exceptions are there)
- Children’s clothes
- Medical supplies and equipment
- Antiques
- Goods donated to charity shops
- Publications ( books, magazine, newspaper etc)
- Gambling
- Admission charges by charities or cultural organisations
- Financial, investments and insurance
- Health, sports and medical activities
- Education and funeral services
- Membership and TV licence fees
Quick Sum Up
Now – after giving this post a read – we hope you have got a better understanding of what is VAT exempt in the UK, what are exempt goods and services, and what exemption is available for businesses and what partial exemption is there. We hope you have got a deep understanding of the VAT exempts goods.
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Disclaimer: This blog provides just a basic information on VAT-exempt goods and services.