Appendix 1 – what has VAT on it, and what doesn’t

VAT Rates

VAT is charged at the following rates:

– Standard rate, 20%

– Zero rate, 0%

– Exempt rate, no VAT

– Special rate for gas and electricity, sanitary products, children’s car seats and urban regeneration 5%

The standard rate

The standard rate is the most common rate of VAT. If in doubt, always charge VAT at 20%. You may be wrong to charge this rate, but it is difficult for you to be penalised for doing so. If your customer objects, please ask us for advice, and you can always issue a credit note.

Zero rate and exempt

Some things aren’t charged at the standard rate. Except for the oddballs that are charged at 5% this means they are either subject to Zero or exempt rates of VAT. This is important for several reasons:

1. You cannot reclaim VAT if it has not been charged to you, so you need to know what does not have VAT on it.

2. If you sell something that is subject to zero rate VAT or exempt rate VAT then you should not charge VAT on your sales invoice.

What items are zero rated for VAT?

In broad terms the following are subject to zero rate VAT, which means VAT is charged, but at zero percent, which makes it look like there is no charge:

  • food (but not catering, entertaining, hot take away meals, sweets and other delicacies and alcohol).
  • water services
  • books
  • newspapers
  • magazines
  • sheet music
  • maps
  • new houses
  • some work on listed and protected buildings
  • public transport
  • air fares
  • the export of some services (but always seek advice on this one as the rules are complicated).
  • some charitable services and supplies to charities
  • childrens clothing

What items are VAT exempt?

In broad terms the following are subject to exempt rate VAT, which means there is no charge to VAT at all on their sale:

– sales of most land

– some rents

– insurance

– banking

– betting and gaming

– postal services, but only if supplied by the Post Office or their agents, and not by anyone else(so if you recharge postage its standard rate)

– most education services, but not most training courses

– most medical services

– non profit making sports activities

Are the above lists complete?

No. The full lists are much too complicated to reproduce here in full. The above are indications of the main areas. If in any doubt as to whether something is zero rate or exempt please phone us, or HM Customs & Excise and ask for advice. Nothing can save you more tax than getting this right.

Why does this matter?

It matters because:

1. you can be penalised for charging the wrong rate

2. if you charge the wrong rate you may not look competent to your customers

3. if you are VAT exempt you may not be able to reclaim all the VAT charged to you from HM Customs and Excise. This is a very important business issue, so it is well worth getting right. If you ever supply anything that looks like one of the exempt items (and if you’re self employed and also let out a property this may well mean that you do) then you need to ask for advice on how to deal with this.

Are there any special problem areas?

Yes the biggest problems we find are with regard to:

  • Printed products. If you deal with these items regularly please seek advice on what items do, and do not, have VAT charged on them.
  • Exports of goods. If you export goods please seek advice on what documentation you must keep to prove that you can zero rate the invoice you are planning to issue.
  • International services. This is a nightmare area. The law is extremely complex. If you supply services to someone outside the UK always seek advice from us, or HM Customs & Excise as to how to charge VAT on your invoice. The risk of a mistake in this area is very high, and can be very expensive. It is well worth checking.

For further information, please contact us on 03332 401 333 or email