Which Businesses are exempt from VAT?

Value Added Tax (VAT) in the UK is a tax applied when goods or services are provided by a company. So a business buying products will be charged VAT by the supplier and then will charge VAT to their customers when they sell on the product or use it to create an end-product.

However, not all goods and services are liable to VAT and some, confusingly, are liable to VAT but at a zero percentage rate – presumably to allow the UK government the option to apply a non-zero rate for those goods and services at some future date.

There are three different VAT rates of, currently, 0 per cent, 5 per cent and 20 per cent depending on the type of products or services being supplied;with the Vat being dueonly if a business'sturnover reaches a certain threshold (currently £81,000) during a 12 month period – note that this is a rolling period not a fixed calendar period.

But many services are entirely exempt from VAT so anyone running their own business should be aware of the VAT regulations, particularly a business that may engage in some activities that are exempt and others that are not. Although much has been done to simplify and provide VAT advice for a small business, such as annual returns and cash accounting, it can still be complicated for certain types of firms.

If your business is exempt from VAT you might think this is a good thing – you won't have to charge and pay VAT on the services you supply - but what it actually means is that you cannot register for VAT and, therefore, cannot claim back the VAT on products or services that you have to buy for your business. So, in some cases you could be worse off than a similar VAT-registered business.

There is also the notion of being partially exempt if, for instance, you are VAT registered because of certain goods or services you supply but you also supply exempt services too. This is where some of the complication starts to become apparent and where you will almost certainly need an accountant to help you out.

VAT Exempt Activities

The most common VAT exempt services and goods are listed below but this list is not an exhaustive one and for some activities the exemption is dependent on certain conditions so always check with your tax advisor if in doubt.

• Sports Activities
• Betting
• Bingo
• Lottery Tickets
• Admission charges to museums, art galleries and other cultural events
• The sale of antiques and works of art (under certain conditions)
• Charity fund-raising events
• Burials and cremations
• Medical care at a hospital, hospice or nursing home
• The services of a doctor, dentist, optician and similar healthcare professionals
• Education and vocational training
• Financial services, including loans
• Insurance

If your business is fully exempt from VAT then you cannot register for VAT and cannot, therefore, claim back VAT from purchase your business makes.

Partly exempt businesses

It is always advisable to talk to a professional tax advisor if your business affairs may fall into this category because you certainly don't want to be paying too much tax, whether that’s VAT, corporation tax or income tax. If your business has incurred VAT charges on products that your have bought that relate to exempt goods or services that you supply, then the business will be partly exempt. However, the rules are complicated because they are also dependent on where you supply your customers.

The author has written and published articles on a wide range of topics including Small Business Advice, Tax and Accounting, Interior Design, House Renovation and Project Management.