ATXP6 UK
Syllabus A6. Value Added Tax A6a. Computation of VAT liabilities

A6a. Principal zero rated and exempt supplies

Syllabus A6a)

F2 The computation of VAT liabilities

Types of supplies

Standard rated supplies

A standard rated supply is taxable at 20%. 

If a trader is VAT registered and makes standard rated purchases, they can reclaim input VAT at 20%, and they must pay output VAT of 20% on their standard rated sales. 

For example, an accountancy firm sold their services for £240 and made purchases of stationery of £12. 
Both of these are standard rated items and VAT inclusive. 

Therefore, the net VAT payable will be:

Output VAT:  £240 * 1/6 = £40
Input VAT: £12 * 1/6 = (£2)
VAT payable = £38

Examples:

  • Stationery

  • Furniture

  • Computers

  • Cars

  • Petrol and diesel

  • Accountancy fees

  • Legal fees

  • Advertising costs

  • Confectionery

  • Vans and lorries

  • Sale of freehold commercial buildings within 3 years from completion

  • Re-painting office premises

  • Extensions to business premises

Zero rated supplies

A zero rated supply are taxable at 0%. 

If a trader is VAT registered and makes zero rated purchases, no input VAT can be claimed, and if they make zero rated sales, no output VAT is payable. 

For example, a VAT registered trader sells baby clothes for £240. 

This item is zero rated, and therefore no output VAT will be payable on the sale.

On the other hand, if a trader makes zero rated supplies and has standard rated purchases, the trader will qualify for VAT repayments. 

For example,  a VAT registered trader sells baby clothes for £240. He pays for his advertising expenses, which cost him £120. 

The trader makes zero rated supplies but standard rated purchases, and can therefore claim the input VAT paid on his advertising expense of £20. (£120 * 1/6)

  1. Basic food (not pet food or luxury items like alcohol and confectionary)

  2. Sewerage services and water

  3. New construction work or the sale of buildings by builders where the building is going to be used for residential/charitable purposes

  4. Drugs and medicines

  5. Export of goods outside the E.U.

  6. Transport (but pleasure transport and transport in vehicles sitting less than 12 people is standard rated)

  7. Clothing and footwear of children

  8. Residential and charitable buildings

Exempt supplies

An exempt supply is not chargeable to VAT. 

A person making exempt supplies cannot recover VAT on inputs, this is because someone making solely exempt supplies will not have any taxable turnover and  cannot become VAT registered.

  1. Land

  2. Insurance

  3. Postal services

  4. Financial services for example, bank charges or credit card services

  5. Education

  6. Health services

  7. Burial and cremation services

  8. Subscriptions to professional bodies

  9. Sale of freehold commercial buildings owned for more than or equal to 3 years