Zero-rating ― overview

Produced by Tolley

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

  • Zero-rating ― overview
  • What does it mean to be zero-rated?
  • Basis of zero-rating
  • Summary of zero-rated supplies
  • Practical points for businesses making and receiving zero-rated supplies
  • Points around registration
  • Points around uncertainty over zero-rating and contractual protection
  • Points around VAT returns, records and schemes

Zero-rating ― overview

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

This guidance note provides an overview of the types of goods and services which can be zero-rated for VAT purposes. It also discusses a number of practical points of general interest to businesses which make and receive zero-rated supplies.

For a video overview of zero-rating, see the Schedule 8 VAT Act 1994 ― zero rate video.

What does it mean to be zero-rated?

A supply which is zero-rated is a taxable supply but taxable at a rate of 0%. The following key consequences therefore follow:

  1. no VAT is charged on the supply

  2. VAT can be recovered on costs associated with making the supply

For VAT recovery generally, see the What is input tax? guidance note.

Basis of zero-rating

Broadly, supplies may be zero-rated for a number of reasons:

  1. they may fall within one of the groups in VATA 1994, Sch 8

  2. they may be goods exported out of the UK

  3. they may be certain dealings on ‘terminal markets’

  4. they may be certain services performed on warehoused goods

The groups of supplies which are zero-rated under VATA 1994, Sch 8 are summarised in this guidance note.

For the VAT treatment of goods removed from the UK, see the Exporting goods from 1 January 2021 ― overview guidance note.

Dealings on terminal markets and services performed on warehoused goods are covered in De Voil Indirect Tax Service V4.208 and V4.209.

Summary of zero-rated supplies

There are a number of different ‘groups’ of zero-rated supplies specified in VATA 1994, Sch 8.

A brief overview of each of these groups is provided below.

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