Andrew Needham looks at the difference between zero-rated and exempt supplies and its effects on input tax recovery.
The basic rule for VAT is that everything is subject to VAT at the standard rate unless the legislation makes an exception for it.
The list of zero-rated supplies is contained in VATA 1994, Sch 8. Zero-rating applies to most basic foodstuffs, water and sewage services, books and newspapers (including those supplied electronically), some building works, exports, transport services such as buses, trains and aircraft, new residential accommodation, some supplies to charities and children’s clothing.
Even though there is no VAT on zero-rated supplies, the zero-rate is a rate of tax, and businesses that make only zero-rated supplies can register for VAT and recover the VAT on their business costs and overheads.
