- Welcome to the third episode in our VAT series.
So far, we've covered the basics
of VAT and voluntary registration.
So be sure to click the link for the full VAT playlist,
if you've not seen those episodes yet.
Today, we're getting into the difference
between zero rated and exempt supplies
and how these impact your business.
Now this video will cover,
what are zero rated supplies?
And how it could benefit your business.
Goods and services to the EU and non-EU countries
from the UK that could fall under zero rated supplies
and what are exempt supplies?
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A charge to UK VAT arises when a taxable supply
of goods or services is made in the UK
by a taxable person.
The term person can apply to an individual sole trader,
a partnership, a limited company, LLP,
or any other body that supplies goods and services
in the course of business.
A taxable supply is any supply of goods and services
in the UK, other than a supply
which is specifically exempted from VAT.
So a taxable supply includes standard rated,
reduce rated and zero rated.
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So zero rated supplies are by definition,
a taxable supply.
Why is this significant?
Well, let me explain with an example.
Let's say you are a business supplying non-luxury foods,
such as meat and poultry that are zero rated.
Each food item, you sell costs £100
multiplied by 0% VAT,
which equals £100.
So you are technically charging VAT just at the zero rate.
A full VAT invoice receipt is still issued
with your VAT registration number on it.
Now the beauty of zero rated supplies
is that you can claim back any VAT
your business has incurred.
So for example, let's say in the year,
your business turned over £100,000 of zero rated suppliers,
and it incurred £15,000 of VAT in goods and services,
in the course of business.
Your VAT return would look something like this,
sales VAT actually collected is zero
input VAT actually incurred is £15,000.
So therefore a VAT refund of £15,000 would be due
to your business.
It's worth noting your business will have
to be VAT registered in order for the above to work.
You cannot simply do this by supplying zero rated goods
without being VAT registered.
We've compiled a free comprehensive list
of zero rated groups and supplies
for you to download and keep for future reference.
Simply click on the link below to head to our website
and download the PDF.
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Generally speaking goods traded between
the UK and EU countries are also zero rated
subject to conditions.
Exports of goods from the UK to non-EU countries
can also be zero rated,
again subject to various conditions.
To get more information on this,
you can refer to VAT notice 703, through the link below
in the description box.
It's quite technical, but definitely educational
and straight from the horse's mouth, HMRC themselves.
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Exempt supplies are exactly what they suggest,
exempt from UK VAT.
They are not classified as a taxable supply,
and therefore, if your business makes exclusively
exempt supplies,
the suppliers are not subject to VAT at all at any rate.
However, your business cannot register for VAT
regardless of your turnover level
if it is only making exempt suppliers.
Now, if your business makes any combination
of exempt standard, zero rated and reduce supplies,
then we strongly suggest you speak
to a trustworthy accountant
as this is where things get rather complex.
And you will most likely need a VAT evaluation.
If you don't know where to start,
click on the link in the description box below
to head to our site
where we explain what a VAT evaluation entails
in a lot more detail.
You can also find a full and comprehensive list
of exempt groups and supplies
in a handy PDF for you to download and keep.
I hope this video has helped you understand
this particular VAT topic in a little bit more detail.
And taken you closer to knowing your numbers
as always let me know in the comments,
your thoughts on today's video,
or if there are any topics you'd like us to cover
in the future.
Finally be sure to like and subscribe
as this really does help us to get our content out there.
This is Tony Dhanjal for the Accounting and Tax Academy.
Thanks for tuning in.
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