Glossary · UK
What is Zero-Rated Supplies (VAT)?
Goods and services charged VAT at 0%, such as most food, books and children's clothes, which still count as taxable supplies -- unlike exempt supplies, which fall outside VAT entirely.
Full Definition
Zero-rated supplies are goods and services that are charged VAT, but at a rate of 0%, so no VAT is actually added to the price the customer pays. Common examples in the UK include most food and drink (excluding hot takeaway food, confectionery and some other exceptions), books, newspapers and other printed matter, children's clothes and shoes, and public transport fares. The key distinction from exempt supplies -- such as most financial services, insurance, health and education -- is that a zero-rated supply is still technically a taxable supply for VAT purposes: it counts towards a business's taxable turnover when checking whether it must register for VAT once it crosses the £90,000 registration threshold, and a VAT-registered business making zero-rated sales can still reclaim input VAT on the costs and expenses used to make those sales, in the same way as a business making standard-rated (20%) or reduced-rated (5%) supplies. An exempt supply, by contrast, does not count towards the registration threshold and generally blocks the business from reclaiming input VAT on directly related costs. A business that sells only zero-rated goods can still choose to register for VAT (even though its output VAT is always nil) purely to reclaim VAT on its purchases, whereas a business making only exempt supplies cannot register at all. Because the classification of individual products can be surprisingly detailed and contested -- famous VAT tribunal cases have turned on whether a snack counts as zero-rated food or standard-rated confectionery -- businesses selling borderline products often need specific HMRC guidance or a ruling to confirm the correct treatment.