Overview - items liable to VAT at the zero-rate

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Overview - items liable to VAT at the zero-rate
  • Overview
  • List of zero-rated supplies
  • Group 1 - food
  • Group 2 - water and sewerage services
  • Group 3 - books, etc
  • Group 4 - talking books for the blind and handicapped and wireless sets for the blind
  • Group 5 - construction of buildings
  • Group 6 - protected buildings
  • Group 7 - international services
  • Group 8 - transport
  • Group 9 - caravans and houseboats
  • Group 10 - gold
  • Group 11 - bank notes
  • Group 12 - drugs, medicines, aids for the handicapped, etc
  • Group 13 - imports, exports etc
  • Group 14 - tax-free shops before 1 July 1999
  • Group 15 - charities
  • Group 16 - clothing and footwear
  • Group 17 - emissions allowances
  • Group 18 - European Research Infrastructure Consortia

Overview

If a supply is included within VATA 1994, Sch 8, Groups 1-18 it is zero-rated. This means that the supply is taxable but it is taxable at the zero rate. The fact that the supply is taxable means that the business making the supply is entitled to recover all of the VAT incurred on costs associated with making the supply. This aspect is what differentiates a zero-rated supply from an exempt supply for VAT purposes. Businesses that make exempt supplies charge no VAT on the supply, but they cannot recover any VAT incurred on costs associated with that supply. Alternatively, a business that makes zero-rated supplies charges no VAT on the transaction but is entitled to recover the VAT incurred on costs associated with making that supply.

VAT registration

The value of any zero-rated supplies must be taken into consideration when determining whether the VAT registration threshold has been exceeded. If a business makes wholly zero-rated supplies then it can request permission from HMRC to be exempted from registering for VAT. However, before making a decision not to VAT register, it would be prudent to take into consideration the additional cost to the business of any irrecoverable VAT that will be incurred on costs associated with the operation of the business. Is the business likely to incur significant VAT on costs associated with the business that it could recover if it VAT registers? A business which makes zero-rated supplies can also voluntarily register for VAT if desirable and it may be beneficial to register for VAT in order to recover VAT incurred on costs. The administrative burden of managing the VAT registration should be outweighed by the ability to recover VAT incurred on business costs.

The business will need to complete and submit a Form VAT 1 - application to register for VAT or use

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