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VAT exempt supplies of goods and services

VAT exempt

Supplies exempt from VAT do not incur a VAT charge.  This is different from VAT zero rate supplies because the VAT rate of such supplies is 0%.

VAT exempt goods and services are detailed in the VAT Act 1994, Schedule 9.

What goods and services are exempt from VAT?

Some goods and services are exempt from VAT. Such supplies include:

  • Education and training
  • Insurance, finance and credit
  • Betting and gaming
  • Fundraising events by charities
  • Medical treatments provided by hospitals
  • Subscriptions to membership organisations
  • Postage stamps
  • Selling, leasing and letting of commercial land and buildings although the option to charge VAT (option to tax) may be available.
  • Selling, leasing and letting of a dwelling other than the first sale.

The above list is not exhaustive.

Detailed provisions can apply to cost sharing groups and if this is potentially applicable to your business we recommend seeking specific advice.

Businesses exempt from VAT

If your business only makes exempt supplies it cannot register for VAT. Exempt income does not count toward the VAT registration turnover threshold.  Consequently such a VAT exempt business does not need to keep VAT records or submit VAT Returns. Such a business cannot reclaim VAT on any business expenditure.

Partly exempt businesses

In some circumstances, a business might be partially exempt from VAT. Partial VAT exemption applies to VAT registered businesses that make both taxable and exempt supplies of goods or services. Taxable supplies are those supplies charged with VAT at either 20%, 5% or 0%. Additionally, partially exempt businesses need to keep separate records. These records should cover exempt supplies and provide details on how VAT was calculated for Input Tax recovery. The normal process would be to attribute, as far as possible, Input Tax to taxable supplies which would be recoverable in full and Input Tax to exempt supplies which would not be recoverable.

If your business is partially exempt from VAT, you can still reclaim any VAT incurred when making taxable supplies. Some VAT incurred on expenditure may not be directly attributable to either exempt nor taxable supplies. In such circumstances the use of a partial exemption method is need to be able to complete a businesses VAT return. Most partial exemption methods are also subject to an annual adjustment.

VAT advice

Our VAT experts at Solve VAT are able to offer VAT advice in relation to exempt and taxable supplies. Call us on 0161 883 2120.

HMRC partial exemption guidance

HMRC’s guidance in relation to partial exemption can be found at https://www.gov.uk/guidance/vat-exemption-and-partial-exemption