When you are an individual who is carrying out business activities in the UK, you are aware of the fact that being registered for VAT is always beneficial for your company. Once you are through with the process of VAT registration, that is when you can start charging VAT on the selling price of your items and services. However, there are different rates for VAT that a business can charge to the customers. There are many factors that will matter in this regard as well. This could possibly include the kind of services and products your business is offering to the clients. Then comes a category of the products that fall out of the implementation of VAT charges. It is imperative to know the zero-rated VAT items here as well.
Moreover, it is better to get to know what VAT is in general before getting into the details of what is referred to as zero-rated VAT and how it works for businesses in the UK. The rate of the VAT will depend on the kind of products and services the clients are asking for from your company. This comprehensive guide has compiled a closer view of how different rates of VAT work and how exempt items are different from zero-rated items. Let us get further delved in the discussion to gather more information.
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How to Define the VAT in the UK?
VAT is the abbreviation of value-added tax. In a business when you are selling your products and services, if you are a VAT-registered business, it will be implemented and charged to the customers. It is also known as the consumption tax. There are certain facts that make it an indirect tax because it is being gathered on the behalf of HMRC and will be sent to them after the business products are sold out. The application of the standard VAT rates is 20% in general. On most of the purchases, this standard rate is applicable. However, there are several other VAT rates too that are decided according to the type of products and services that your business is offering.
Moreover, there are a few items that come under the category of reduced VAT tax and the percentage of reduced VAT is 5%. Child car seats, sanitary products, and energy-saving measures are a few examples of this category. Then there is zero-rated VAT that is applicable to certain goods and services. These products and services will then be charged t0 zero percent.
How Does VAT Work?
When we talk about how VAT works on zero-rated items. We are considering the category of products like food, newspaper, and books. Now some people stop maintaining the record of VAT for such items because no VAT is charged. However, you are still required to maintain the record even if VAT is not charged. This will have to be a part of the VAT return. So keep the information intact.
Another category of products and services is considered to be exempted from VAT charges. Financial and property transactions are a part of this category. This must not be a part of the taxable turnover as well. When the taxable turnover of a business goes above the limit of £85,000, the business must register for VAT before charging it to the clients. Some businesses choose to opt for VAT registration even before they reach the taxable turnover. This depends on the unique business needs that will help you to decide about it.
What is Zero-Rated VAT?
One kind of VAT rate is known to be zero-rated VAT. Items that come under this category are charged at a 0% VAT rate. Some popular examples of such items and services include the following:
- Footwear and clothing of children
- A certain kind of seeds is being utilised to grow certain foods.
- Some specific types of medical equipment and prescription drugs.
- Food and drinks of a certain kind.
- Moreover, there are a few examples of travel that are charged at 0% rates as well. Also, the food types hot takeaway parcels and soft drinks along with alcohol come under this category.
How are Exempt Items and Zero-Rated Items Different?
The key differences between the zero-rated items and exempt items are outlined below:
- When we talk about the items that are exempt, this means that we do not pay VAT on such items at all. As they are exempted from this obligation. The maintenance of the records will still be required in this case. Postal service, gaming, health service and land are a few common examples of exempt items.
- Now when it comes to the zero-rated items, the VAT is charged on these items by the government. However, the current rate is set to 0% for these items. Newspapers, books, basic food, and water are the common examples that come under this classification.
The Bottom Line
Now that we have gathered a fair amount of information about what is zero-rated VAT items in the UK, we can bring the discussion towards wrapping up. Getting registered for VAT in the UK is indeed beneficial for most businesses. However, your business needs will help you to make the right choices in this regard. As some businesses tend to get registered even before they cross the taxable turnover because their business might be in a good position to get along with this procedure. Having an awareness of different charging rates before registration is important to avoid any unfavourable circumstances in the future.
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Disclaimer: All the information provided in this article on what is zero-rated VAT items in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.