Understanding which supplies are zero rated for VAT is essential for any business. A zero-rated supply is still a taxable supply, but it is charged at a 0% VAT rate. This distinction is important because VAT incurred in making a taxable supply can still be recovered. Therefore, a business that only makes zero-rated supplies can register for VAT in the usual way, allowing it to reclaim VAT on costs associated with producing these supplies, many of which may have been charged at the standard 20% rate.
Businesses that sell zero-rated supplies are often in a repayment position with HMRC, meaning they can recover the VAT they have incurred on purchases without having to charge VAT on their sales. This can provide a cash flow advantage, especially for businesses with high input costs relative to their zero-rated sales.
Some common examples of zero-rated supplies include:
- Books and newspapers (including electronic versions)
- Women’s sanitary products
- Children’s clothes and shoes
- Motorcycle helmets
- Most goods exported from England, Wales, and Scotland to countries outside the UK
- Most goods exported from Northern Ireland to countries outside the EU and UK
- Goods supplied from Northern Ireland to a VAT-registered EU business (VAT number must be valid)
