Zero-rated and VAT-exempt products or services & your invoices
Beyond the standard UK 20% VAT on products/services, there are two additional tax rates: 5% and 0%. These apply only to specific items or types of services.
Does your business work only with products or services that fall under the zero-rated VAT in the UK? Or do you sell a selection of items that are zero-rated? In either case, there are important things to keep in mind when it comes to your invoicing.
In addition to these three VAT rates, there is another option: VAT-exempt. Some products and services are considered VAT-exempt. A business can also be considered VAT-exempt if it sells only VAT-exempt goods/services. In this case, they would not be eligible to register for VAT and would not submit VAT returns.
VAT-exempt products/services in the UK
You likely are already aware that zero-rated is very different from VAT-exempt. The primary difference of concern is that for VAT-exempt items, no VAT should be included in invoicing.
- VAT-exempt products/services include, for example:
- Sports and physical education activities
- Fundraising events for charitable organisations
- Moorings for houseboats
- Insurance transactions
As you can see, while there might be some discernible trends for determining whether a product or service is VAT-exempt, the range is vast and if you’re uncertain about whether your business deals with sales of a product or service that is VAT-exempt, it is best to check with a tax professional.
Invoicing as VAT-exempt
If you’re a VAT-exempt business creating invoices for sales to customers with VAT-exempt items, there should be no VAT included on your invoices. If you’re using invoicing software like Debitoor, you can easily disable the VAT in your account settings. This will automatically remove the VAT option from your invoices.
Keep in mind that your expenses will also be affected. This means that by deactivating the VAT feature within your account, it’s not possible to record VAT on expenses, as VAT-exempt business also cannot claim VAT.
Products/ services that are 0% VAT
The sales that require 0% VAT to be reflected on the invoice cover a broad range of different types of products and services. These include, for example:
Printing of brochures, leaflets, or pamphlets Publishing books or magazines Sale of children’s clothing & footwear Sale of protective helmets for cycling or construction Construction on property for charitable purposes
These all fall under products/services that do require that you list the VAT, even though it is 0%. This means that it still will be reflected in your VAT returns, for example.
Creating invoices with zero-rated VAT products/services
If your invoice includes items or services that have a VAT of 0%, the right invoicing software makes it easy to create, send, and manage invoices with this rate.
With Debitoor, there’s no need to do anything except select 0% from the drop down menu of the invoice line for zero-rated goods or services when creating an invoice. As long as you have VAT activated in the settings of your account, this option will appear automatically.
If you’re also working with other VAT rates, not to worry. You can include multiple VAT rates on your invoice easily simply by using the same drop down menu.