Liability — overview

Introduction to liability

Supplies of goods and services which are made by taxable persons in the course of their UK business activities can be subject to one of four VAT liability treatments:

1. •

   standard-rated

2. •

   reduced-rated

3. •

   zero-rated

4. •

   exempt

Standard, reduced and zero-rated supplies are often referred to collectively as ‘taxable supplies’. This distinguishes them from exempt supplies. The distinction between supplies that are taxable and supplies that are exempt is important because of its consequences for input tax recovery. VAT can generally be recovered on costs which are used to make taxable supplies. However, VAT cannot generally be recovered on costs which are used to make exempt supplies. This distinction is covered in greater detail in the Input tax - overview and Partial exemption - overview guidance notes.

The reduced-rate, the zero-rate and exemption are sometimes referred to collectively as ‘VAT reliefs’. This is because VAT is either not chargeable on sales or is chargeable at a lower rate than the standard-rate. Despite being a ‘relief’, exemption will not necessarily be a more desirable treatment than the standard-rate because of its impact on VAT recovery. For example, it would be preferable for a business whose customers