What are taxable sales or supplies for VAT?

One of the conditions for a business to register for VAT is that it must be making taxable supplies of goods or services.

This is generally straightforward as MOST goods and services are taxable supplies.  Here we will address a confusion that often arises: VAT exempt supplies versus zero rated supplies.

But what is a taxable supply?

A taxable supply is a supply (or sale) of goods or services which are subject to VAT.  The term “supply” is used as there need not be exchange of money or money’s worth for VAT to apply to the supply.

As I said, most supplies are subject to VAT.  There are specific provisions in the VAT law for exemptions zero rated supplies, and supplies at the reduced rate.  Everything else is taxable at the standard rate.

What supplies are VAT exempt?

The provisions for VAT exempt sales can be very specific and proper professional advice should be sought prior to making any decsion on whether or not a supply is exempt.  Some of the main ones are:

  • Various financial services
  • Education and training (with the notable exception of driving instruction)
  • Medical and dental services
  • Letting of property (althouth there are numerous and complex exceptions)
  • Hospital and medical care
  • Promotion and admission to live performances (except dances and where food/drink facilities are available during the performance)
  • Insurance
  • Public postal services
  • Passenger transport
  • Investment gold
  • funeral undertaking

I make exempt supplies…what does this mean, exactly?

If you make exempt supplies only, then you cannot register for VAT.  This means you cannot reclaim any VAT charged to you on you purchases.

If you make a mix of supplies (exempt and taxable) then you can register for VAT and reclaim VAT on purchases made in connection with the taxable supplies.

A common mistake is one where businesses make predominantly exempt supplies assume that the sector in which they operate is what is exempt.  It’s important to remember that it’s the nature of the supply and not the industry sector that determines that VAT treatment.

For example:

A doctor giving expert witness services in a court case would be a taxable supply, even though medical care is exempt.

A taxi driver delivering packages would be a taxable supply, even though taxi services (transport of people) is exempt.

So what are zero rated supplies?

These are supplies that have VAT charged at 0%.  Common examples include:

  • Food and drink (with various exceptions and conditions)
  • Childrens clothing
  • Printed books (but not e-books)
  • Wax candles that are white and cylindrical – I’ve included this to demonstrate how specific the law can be!

…but is zero rated and exempt not the same thing?

Well, neither have any VAT charged on supply.  However, there is very important difference.  Zero rated supplies are taxable supplies.  VAT is technically charged on the supply, albeit the amount is nil.   This means that businesses making zero rated supplies can reclaim VAT on purchases incurred in the making of those supplies.

 Here’s another blog post you might find useful:

VAT for Startup Business

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