VAT Rates and Exemptions

VAT Rates

VAT  applies to the sale of goods and services in the United Kingdom and to the import of goods and services into the United Kingdom.

There are three rates of VAT – 0% rates, 20% (standard) and the reduced rate applicable to certain domestic and charitable use products. The 20% residual rate applies to all other sales and supplies other than those listed as exempt or enjoying the lower rates.

Zero Rate

The zero rate applies to certain types of goods such as

• books magazines and newspapers;
• Food sold in shops;
• babies and children’s clothing and footwear;
• construction of new homes;
• passenger transport

In the case of 0% rate, the trader can recover VAT on its inputs i.e. its purchases but charges VAT at a 0% rate on supplies.  In contrast where a trade business is exempt VAT cannot be recovered on purchases.

Lower Rate

There are is a reduced rate applicable (5%;2018) to certain goods and supplies including

• domestic fuel and power
  renovations and alterations of dwelling houses

Some other supplies for social or political reasons enjoy the lower rate.

Exempt

The supply of certain goods and services are VAT exempt.The suppliers may not recover VAT on their inputs they have no obligation to charge or account for VAT.

Exempt goods and services include

• financial services
• banking insurance
• education and training
• health and welfare
• grant, assignment or surrender with interest in land.

A freehold sale of new or uncompleted buildings is standard-rated unless residential where it is 0% rated.

Where a business is sold as a going concern the sale may be treated as an exempt  supply if the business is transferred as a going concern, there is no significant break in the trading on the same type of trade is carried on before or after the transfer.   The transferor and transferee must be both registered for VAT.