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Explaining No VAT, Zero rated and VAT exempt
Explaining No VAT, Zero rated and VAT exempt

Explaining the different VAT categories clients may come accross when trying to categorising expenses.

Sophie Carter-Lunn avatar
Written by Sophie Carter-Lunn
Updated over a week ago

Value Added Tax (VAT) is a tax that is added to the price of most goods and services in the United Kingdom. However, there are some goods and services that are exempt from VAT, or that are subject to a reduced rate of VAT.

The terms 'No VAT', 'Zero-Rated', and 'VAT Exempt' are all used to describe goods and services that aren't subject to VAT, but there are some important differences between these terms.

'No VAT' means that the goods or services being sold aren't subject to VAT because the seller is not registered for VAT. This could be because the seller's turnover is below the VAT registration threshold, because they have chosen not to register for VAT, or because they work from a place that doesn't have VAT, for example, the USA. Because the seller is not registered for VAT, they cannot charge VAT on the item.

'Zero-Rated' means that the goods/services being sold are still subject to VAT, but the rate of VAT is 0%. This means that the seller is registered for VAT, but is not charging any VAT on the item. This could be because the item falls into a category of goods or services that are zero-rated for VAT purposes, such as books, children's clothes, or most food items. Because the item is still subject to VAT, the seller can reclaim any VAT they have paid on the cost of the item.

'VAT Exempt' means that the goods/services being sold are not subject to VAT because it falls into a category of goods or services that are exempt from VAT. This could include things like education, healthcare, or insurance. Because the goods/services are exempt from VAT, the seller can't charge VAT on the item, and they cannot reclaim any VAT they have paid on the cost of the item.

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