VAT – zero-rated and exempt expenses

Posted 18/06/2019

For businesses that are VAT registered, recording the VAT reclaimed on expenses accurately is an important part of their bookkeeping. The VAT receipts and invoices must be kept safely as evidence of the VAT paid, each clearly showing the breakdown of net and VAT amounts, and the VAT number of the supplier. Some businesses, though VAT registered, may not show these details on their documentation so without the evidence it can be difficult to know if a particular product falls under the standard rate VAT category.

A zero-rated product or service do sometimes have VAT charged on them as per government regulations but in some cases, you will not pay any VAT on them. Exempt products or services do not have VAT charged on them in any situation, but they must still be recorded on the VAT return. Below are common items that businesses will need to look out for when inputting the information.Insurances, charity and leisure events such as Bingo events are exempt from VAT. Some education, training and subscription purchases also fall into exemption; in these cases it is advisable to review the receipt for VAT information.

Food and drinks are one example of a product that can vary from being zero-rated to standard rate. Restaurants must charge VAT on all food consumed by customers on their premises or designated areas, and Vat to be charged on hot food takeaways and home deliveries. Cold food takeaways are zero-rated. So, if you do have a café or restaurant then it is even more important you have the VAT documentation clearly showing the amount of VAT paid correctly. Some animal feeds are similar in that some types are zero-rated while some types are the standard rate of VAT.

Postage from Post Offices does not carry VAT charges, but because delivery services like MyHermes and DPS can apply VAT this catches some people out. Stationery from a Post Office will retain its usual 20% charge; the exemption only applies to cost of stamps and posting. Books, newspapers and magazines are zero-rated items that some people assume have VAT charged on them.

Parking operated by the local authority does not carry VAT implications, but a car park that is privately owned by another company may charge VAT on parking in their area. To know if you can reclaim the VAT, you will need to examine the receipt paid for parking for a VAT number. If there is a number, then you can reclaim the VAT paid.

Travel by train, bus or plane will have no VAT applied on the expenses, so none can be reclaimed on these. Taxi’s, on the other hand, can charge VAT on their fares if they are VAT registered. It is important to ask your driver for a VAT receipt at your destination.

If you are in doubt as to whether you can reclaim VAT on any business expense, it is always ideal to consult with your accountant or, if you do not have one, with HMRC’s online website.


Tags: Expenses, VAT, bookkeeping