VAT Rates - Normal and Exemptions

We are all painfully aware, the current “normal” rate of VAT is 20%. There are exceptions where a different rate applies.

Exempt Goods and Services (VAT rate = 0%)

There are goods which are exempt. VAT cannot be charged on these goods. Examples include financial services and insurance, postal services, betting. The full list is best explained by HMRC, VAT exempt goods.

Therefore, if I purchase an insurance product and then sell this on to a customer. I do not pay VAT on the purchase and I do not add VAT to the subsequent customer invoice. This product is outside the VAT system. If your business only sells exempt services, you cannot register for VAT and hence cannot recover any input VAT. If you sell a mixture, strictly speaking, you cannot claim the input VAT from making exempt supplies.

If you have significant involvement with exempt goods, we suggest you seek VAT advice. Many of these exempt goods are covered by different regulation. We have therefore put them outside the boundary of what we are currently explaining.