Definition
Zero-rated goods and services are taxable for VAT but charged at 0%. A business selling them charges its customers no VAT yet can still reclaim the VAT on its own costs.
Examples
Most food, children’s clothes and shoes, books and newspapers, public transport, and goods exported from the UK are zero-rated.
Zero-rated is not the same as exempt
| Zero-rated | Exempt | |
|---|---|---|
| VAT charged to the customer | 0% | None |
| Counts towards the registration threshold | Yes | No |
| VAT on related costs can be reclaimed | Yes | Generally no |
| Included in box 6 of the VAT Return | Yes | Yes |
A business that only makes zero-rated sales usually receives VAT repayments from HMRC, because it has input tax to reclaim and no output tax to pay. A business that only makes exempt sales cannot register for VAT at all.
The other rates
The standard rate is 20%. A reduced rate of 5% applies to a few things, such as domestic fuel and power.
Read more: VAT and VAT exempt.