Industries With Special VAT Rules, Rates, and Exemptions

While the standard VAT rate is 20% for most goods and services in the UK, certain industries have Special VAT Rules reduced rates, zero ratings, exemptions, and accounting schemes permitted by HMRC. The rationale is to alleviate VAT burdens on sectors that are struggling, provide essentials at lower costs, or boost international competitiveness. This guide examines UK industries subject to tailored VAT concessions.

Food and Groceries

The sale of most food and beverage items for human consumption is zero-rated under VAT rules. This helps keep grocery costs affordable. Key examples include:

• Unprocessed food items like fruits, vegetables, meat, poultry, fish, eggs and dairy products
• Beverages including bottled water, tea, coffee, fruit juices and milk-based drinks
• Most bakery items including cakes, biscuits and cereals
• Food takeaways and restaurant meals (but not alcoholic drinks)

Catering businesses can thus minimize VAT expenses by focusing on food services over alcohol sales. Retailers of groceries and takeaway meals also avoid charging output VAT.

Medicines and Medical Equipment

Medicines and medical equipment are generally either VAT zero-rated or exempt to promote public health:

• Prescription drugs and over-the-counter medicines are zero-rated for VAT.
• Medical equipment like wheelchairs, hearing aids and prosthetics are mostly zero-rated.
• Healthcare services provided by medical professionals are VAT-exempt.
• Customized equipment for disabled persons is also zero-rated.

This beneficial treatment applies across the healthcare sector, from GPs to pharmacies to medical device producers.

Education and Training

Education and vocational training services are exempt from VAT to encourage upskilling and learning. Key examples include:

• School, college and university fees for accredited programs
• Vocational training and apprenticeship programs
• Professional certification courses provided by accredited bodies
• Supplementary tutoring, educational consultancy and coaching

E-learning courses may also qualify for VAT exemption subject to meeting criteria around accreditation. Educational publishing such as books and academic journals is zero-rated as well.

Financial and Insurance

Financial services and insurance are VAT-exempt industries, including:

• Banking, savings, loans and mortgages
• Investment brokerage and fund management
• Insurance underwriting and claims processing
• Financial consultancy, planning and auditing
• Spread betting, currency trading and derivatives

Exemption avoids complex VAT calculations on margins and commissions. It also enables international competitiveness for a key UK industry.

Postal Services and Stamp Sales

Postal delivery services within the UK provided by Royal Mail are VAT-exempt. Special VAT rules also apply to postage stamps:

• First class and second class stamps are zero-rated.
• Large business customers pay no VAT on bulk stamp purchases over £1,000 in value.
• Small businesses can voluntarily register with Royal Mail to buy stamps VAT-free.

These provisions ease VAT costs given stamps are required to send mail.

Funerals and Burials

Funeral services and associated goods like coffins are zero-rated for VAT purposes. Cremation services are also zero-rated. This aims to minimize VAT expenses for the bereaved.

However, memorials like headstones and plaques carry standard-rated VAT at 20%.

Low-Value Imports

Imported commercial goods worth less than £135 are VAT-exempt on importation to facilitate small international fulfillment orders. This allows UK retailers to offer low international shipping costs. Personal imports below £39 are also exempt.

Agriculture

Farming benefits from various VAT concessions including zero-rating of agricultural equipment like tractors, exemptions on land drainage works, and flat rate write-off percentages for input VAT recovery.

Hospitality and Tourism

The hospitality sector benefits from special VAT rules on hotel accommodations and tourist attractions:

• Hotel rooms and holiday home rentals are taxed at a reduced VAT rate of 5% rather than the standard 20% rate.
• Major tourist attractions like museums, theatres, and amusement parks also charge 5% VAT on admission tickets.

These measures boost the international competitiveness of the UK’s tourism industry.

Transport

Public transport services are VAT-exempt to encourage mass transit use over personal vehicles. Key exemptions include:

• Passenger fares on trains, buses, ferries and flights within the UK
• School transport, coach tours and hot air balloon rides

Private hire taxis are exempt as well. Road tolls and parking fees are also outside the scope of VAT.

Media and Broadcasting

Certain media sectors receive preferential VAT treatment:

• Book sales are zero-rated (but not ebooks)
• Newspaper and magazine sales are zero-rated (digital publications standard-rated)
• Commercial television broadcasting is exempt from VAT

These rules aim to minimized media costs and promote publishing.

Charities

Charities are eligible for certain VAT concessions and refunds:

• Special provisions to reclaim input VAT not usually recoverable
• Zero-rating of goods donated to charities by businesses
• Zero-rating of construction services for charitable projects

This aids fundraising efforts and the delivery of charitable services.

Awareness of VAT exemptions and zero-ratings in your industry allows maximizing their benefit for your business. Always consult VAT Notice 701/1 to confirm the applicable rates.