What is zero-rated VAT?
Zero-rated VAT applies to certain goods and services that are taxable for VAT purposes, but charged at a rate of 0%. This means no VAT is added to the price, but the sale still counts as a taxable supply, so it must be included in a business's taxable turnover and reported on its VAT Return. Examples of zero-rated items in the UK include most food, books and newspapers, children's clothing, and public transport.
Zero-rated vs exempt VAT
Zero-rated and exempt supplies are often confused, but they are treated differently for VAT purposes. Zero-rated sales are taxable supplies at 0%, and they count towards a business's taxable turnover for VAT registration purposes. Exempt sales, by contrast, are outside the VAT system entirely and do not count towards taxable turnover. This distinction matters because a business making only exempt sales cannot register for VAT or reclaim input VAT, whereas a business making zero-rated sales can register and reclaim input VAT as
normal.
Related terms: VAT, Taxable Turnover, VAT Exempt, VAT Registration Threshold
VAT rules depend on the nature of transactions and individual circumstances. This glossary provides general information and is not personalised tax advice.