Salted nuts are standard rated, but packets of nuts which are still in their shells are VAT free.
Category Archives: VAT Zero rate
A VAT Did you know?
All alcoholic drinks are always standard rated. Alcohol-free beer and wines are similarly subject to VAT.
VAT and charities – updated guidance
HMRC has updated its guidance on How VAT affects charities. This includes details of a new relief from 1 April 2026 for VAT registered businesses donating goods to a charity (Section 5.5).
A VAT-registered business can zero-rate the donation of goods to a charity or its trading subsidiary provided that the goods are to be offered for sale.
From 1 April 2026, businesses do not have to account for VAT when they donate goods to a charity for:
- onward donation to an individual, another charity or another organisation
- use in the charity’s non-business activities
Goods may be donated without incurring a VAT charge when:
- the goods are eligible
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A business donates goods for an eligible use
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the goods are donated to a charity which is either registered with the Charity Commission, corresponding regulator (where required) or registered with HMRC for charity tax purposes
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The donating business holds evidence that eligible goods have been donated to an eligible charity
Before 1 April 2026 businesses were required to account for VAT on a deemed supply when goods forming part of their assets were donated to a charity and input tax had originally been recovered on their purchase.
More on VAT and charities here.
VAT: New, important HMRC guidance for zero-rating exports
HMRC has updated its Notice 703 which explains the conditions for VAT zero-rating exports of goods. It is crucial for a business to have the correct documentation to evidence goods physically moving out of the UK.
Information on official evidence has been updated in paragraphs 6.2, 7.1 and 7.2 as follows:
- Para 6.2 Official evidence
Official evidence is an export declaration for the goods submitted to the Customs Declaration Service which has generated a departure confirmation. You will need the Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) of the declaration.
- Para 7.1 Air and sea freight
- If you are using commercial transport documents as proof of export for goods exported outside the UK or EU by:
- air — you must obtain and retain an authenticated basic master airway bill or house air waybill endorsed with the flight prefix and number, and the date and place of departure
- sea — you must keep one of the copies of the bill of lading or sea waybill along with a note of the export declaration Movement Reference Number (MRN) or Declaration Unique Consignment Reference (DUCR) or, where a shipping company does not issue these, a certificate of shipment (certifying actual shipment) along with a note of the export MRN or DUCR, given by a responsible official of that company.
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7.2 Road freight
The international consignment note provides evidence of the identity of the contracting parties when goods are transferred by road. It is in 3 parts and is completed and signed by the sender of the goods, the carrier and the person receiving the goods. If the international consignment note is used as part of the evidence, it is important that the information is complete and all the details legible. Where the overseas customer arranges for the goods to be collected ex-works the international consignment note alone is not conclusive evidence that the goods in question have left the UK. Read paragraph 6.6 for additional evidence required when making an indirect export.
Where goods leave through a port using the Goods Vehicle Movement Service, you should retain the Goods Movement Reference of the vehicle for that journey.
Failure to produce the appropriate and accurate evidence will result in output tax being due on the relevant goods.
VAT: Composite or separate supplies – The A & D McFarlane case
Latest from the courts
Yet more on composite or separate supplies. As a background to the issue please see previous relevant cases here here here and here. This is the latest the seemingly endless and conflicting series of cases on whether certain supplies are multiple or single.
In the First-Tier Tribunal case (FTT) of Alan and Diane McFarland the appellants operated a ‘bed and breakfast’ for other people’s cattle.
The issue
The VAT issue was whether there were separate supplies:
- zero-rated supply of animal food
- exempt supply of land.
Additionally, the appellant contended that the supply of animal food was a principal supply, and everything else, including the land, was ancillary.
HMRC took the view that there was a single taxable supply of ‘animal care’ and not separate supplies of exempt stabling and zero-rated feed. It also rejected the claim that the appellant had an exclusive right of occupation over any defined area, noting that there was no agreement conferring such a right with the consequence that this could not be an exempt supply. On the zero-rated animal foodstuffs point; HMRC concluded that the supplies do not qualify for zero-rating as the food provided formed part of the overall service of animal husbandry.
Legislation
- Exemption: right over land or any licence to occupy land – The VAT Act 1994, Schedule 9, Group 1, item 1
- Zero-rating: animal feeding stuffs – The VAT Act 1994, Schedule 8, Group 1, Item 2.
Decision
The FTT found that there was a single standard rated supply of ‘looking after’ cattle. The supply made by the appellant fell squarely within the Levob (Levob Verzekeringen BV [C-41/04]) category, being so closely linked that they form, objectively, a single, indivisible economic supply, which it would be artificial to split. – HMRC notes on Levob here.
The supply was a fully integrated package of services directed towards the rearing and finishing of cattle. This included: daily mixing and provision of feed, management of water and housing, maintenance of handling facilities, statutory record‑keeping, and disease‑control obligations. These activities were inseparable in practice and indispensable for the operation of the recipient’s cattle‑finishing business. Neither the accommodation nor the feed, nor any other individual component, was offered or taken independently. There was a single price for the complete service. There was also a single invoice and a single description of the supply on the invoice. There was no indication on the invoice that both exempt and zero-rated services were being supplied.
The appellant provided a single composite service of animal rearing and management, to which all elements, including accommodation and feed, were merely constituent elements.
The Tribunal also dismissed the alternative argument of the that the supply of food was the principal supply, with all other elements, including accommodation and the wider activities being merely ancillary. The provision of food was not an aim in itself. The food could not sensibly be separated from the accommodation, handling, record-keeping and welfare-related functions that were also performed. It was, therefore, not the principal supply but an integrated component of the single composite supply.
The appeal was consequently dismissed.
Commentary
Yet another case on the perennial composite/single supply issue. This case was relatively straightforward and the outcome was no surprise. It is essential that businesses that potentially deal with agent/principal matters or make supplies at different VAT rates consider their position. Contracts, other documentation and the commercial reality need to be considered. We recommend that in such circumstances a review is carried out specifically to establish the correct VAT position .
Updated Guidance on Zero-Rated VAT for UK Exported Goods and Customs Processes
HMRC has updated its guidance on applying zero-rated VAT to goods exported from the UK – VAT Notice 703.
The amendments reflect the latest legal requirements (the latest force of law) and customs processes as of 13 February 2026 and removes outdated customs terminology and guidance.
Summary
Goods exported from the UK can be zero‑rated provided they physically leave the UK and all HMRC conditions are met. Notice 703 sets out who can apply zero‑rating and the legal basis under the VAT Act 1994.
Conditions & time limits: Exporters must ensure goods are exported within specified time limits (generally within three months, but longer in some cases) and meet detailed conditions depending on whether the export is direct, indirect, or in special scenarios (eg; retailers, ships, aircraft).
Evidence & record‑keeping: Zero‑rating is only valid if acceptable proof of export is obtained and retained (such as customs declarations and commercial transport documents), with clear rules on records, customs systems, and compliance checks.
In order to zero-rate a supply, it is vitally important that exporters obtain the correct evidence that goods have physically left the UK and that all descriptions of the goods are accurate and satisfy HMRC requirements. There has been a significant amount of case law on export documentation (an example here) which illustrates that this is often an area of dispute.
A VAT did you know?
Crisps – spot the difference: Doritos, Monster Munch, Wotsits and poppadums are standard rated, however Pringles, Skips and Twiglets, are VAT free.
The ABC of VAT – property
Anyone who has had even the slightest brush with VAT will know that it is a very complex tax. Now, multiply that complexity by the intricacy and occasionally arcane nature of property law and one may see that the outcome will be less than straightforward. I have produced a general guide and an article on residential property VAT Triggerpoints
I hope the following glossary will help with steering through some of the difficulties.
- Annex– a building which is joined to or is next to a larger main building usually an extension or addition to a building
- Assign – to transfer the right or interest in a property from one party to another
- Break clause – a clause allowing either landlord or tenant to give written notice after a particular date or period of the tenancy in order to end the tenancy
- Beneficial owner – party deemed to make a supply of property rather than the legal owner
- Blocked input tax – VAT which a developer is unable to recover when constructing a new dwelling. Typically, expenditure on good such as; carpets, fitted furniture, and gas and electrical appliances
- Building materials– goods ordinarily incorporated into a property which attracts similar VAT treatment to the construction services.
- Capital Goods Scheme(CGS) – a method of calculating the recovery amount of input tax incurred on property over a ten-year period, Details of the CGS here
- Certificate – a document issued to a supplier in order to obtain certain zero-rated or reduced-rated building work
- Change of number of dwellings– usually a conversion from commercial to residential, or a single house into flats (or flats into a single house) at 5% VAT
- Consideration– a thing done or given in exchange for something else = a supply. Usually quantified in money, but in some cases non-monetary consideration
- Construction of new dwellings – a zero rated supply
- Contract – legal document detailing the agreement of terms between the vendor and buyer
- Contractor – entity responsible for building works
- Conversion–work on a non-residential building which results in a property designed as a dwelling(s) being created
- Covenants – rules governing the property in its title deeds or lease. May impact the definition of dwellings
- Curtilage– either a garden, or an area surrounding a building which is deemed to be part of the property
- Designed as a dwelling– a property initially designed for residential use, regardless of any subsequent alternative use
- Dilapidations – items that have been damaged during a tenancy for which the tenant is responsible for the cost of repair or replacement. Usually VAT free
- DIY Housebuilders’ Scheme – a scheme which ‘self-builders’ to recover VAT on a new build dwelling or conversion. Details here
- Domestic Reverse Charge – a self-supply charge details here
- Dwelling– a building deemed to be residential
- Empty house – if, in the ten years before work on a dwelling starts, it has not been lived in, the work may be subject to 5% rather than 20% VAT
- Exempt– a supply that is VAT free. It usually results in attributable input tax falling to be irrecoverable
- Facade– a wall (or two walls on a corner plot) which may be retained without affecting the zero rating of a new dwelling construction
- Grant– a supply of an interest in land
- Holiday home – the sale or long lease of a holiday home cannot be zero-rated even if it is designed as a dwelling
- Housing Association – a non-profit organisation which rents residential property to people on low incomes or with particular needs
- In the course of construction– meaningful works that have occurred in relation to the construction of a building (but prior to its completion)
- Incorporated goods – goods sold with a new dwelling which are zero rated and to which the input tax block does not apply. See white goods
- Input tax– VAT incurred on expenditure associated with property
- Interest in, or right over, land– the right to access to and use of, land. Usually via ownership or lease
- Lease – legal document governing the occupation by the tenant of a premises for a specific length of time
- Licence to occupy– a permission to use land that does not amount to a tenancy
- Live-work units – a property that combines a dwelling and commercial or industrial working space. Usually subject to apportionment
- Major interest–a supply of a freehold interest or a lease exceeding 21 years
- Multiple occupancy dwelling – a dwelling which is designed for occupation by persons not forming a single household
- New building–a commercial building less than three years old the sale of which is mandatorily standard
- Non-residential– a commercial building which is not used as a dwelling
- Open market value – likely sale price with a willing seller and buyer, with a reasonable period of marketing and no special factors affecting the property
- Option to tax (OTT) – act of changing the exempt sale or letting of a commercial into a taxable supply. The purpose is to either; recover input tax or avoid input tax being charged. Details here
- OTT disapplication– the legal removal of a vendor’s option to tax
- OTT not applicable – the OTT does not apply to residential buildings (so VAT can never apply to dwellings)
- OTT revocation– the ability to revoke an option to tax after six months or twenty years
- Partial exemption– a calculation to attribute input tax to exempt and taxable. Generally, VAT incurred in respect of exempt supplies is irrecoverable
- Person constructing – a developer, contractor or sub-contractor who constructs a building
- Premium – upfront payment for a supply of property
- Relevant Charitable Purpose (RCP)–the use by a charity for non-business purposes or for use as a village hall or similar
- Relevant Residential Purpose (RRP)– dwelling used for certain defined residential purposes, eg; children’s home, a hospice or student accommodation
- Reverse surrender– a tenant surrenders an onerous lease to the landlord and makes a payment to surrender
- Share of freehold – where the freehold of the property is owned by a company and the shareholders are the owners of the property
- Single household dwelling– a building designed for occupation by a single household
- Snagging – the correction of building faults. Usually follows the VAT liability of the original work
- Stamp Duty Land Tax (SDLT) – tax paid by a purchaser of a property. SDLT is increased if the sale of a commercial property is the subject of an option to tax
- Substantial reconstruction– certain significant works to a listed building
- Surrender– a tenant surrenders the lease to the landlord in return for payment
- Taxable supply– a supply subject to VAT at the standard, reduced or zero-rate
- Use as a dwelling – a building which was designed or adapted for use as someone’s home and is so used
- Vendor – entity selling a property
- Transfer of a Going Concern (TOGC) – the VAT free sale of the assets of a business as a going concern. This may include a tenanted property
- Zero-rated– a taxable supply subject to VAT at a rate of 0%
We strongly recommend that advice is obtained if any property transaction is being undertaken.
Details of our land and property services may be found here.
VAT: Updated guidance for new charity buildings
Charities
HMRC have updated its Guidance on VAT refunds for constructing a new charity building. It provides information on when a charity can claim a VAT refund using the DIY housebuilders scheme if it is constructing a new charity building for a charitable or relevant residential purpose.
Meanings
Relevant charitable purpose
A relevant charitable purpose building is used by a charity for non-business purposes.
For VAT purposes, activities that do not make a profit, or activities where any profit is only used to further the aims and objectives of the charity, can still be classed as business activities.
Relevant residential purpose
A relevant residential purpose building is used by a charity for non-business purposes. It is:
- a home or other institution providing residential accommodation for children
- a home or other institution providing residential accommodation with personal care for old age people, disablement, past or present dependence on alcohol or drugs or past or present mental disorder
- a hospice (as long as that hospice provides some residential accommodation, such as beds for patients)
- residential accommodation for students or school pupils
- residential accommodation for members of any of the armed forces
- a monastery, nunnery or similar establishment
- an institution which is the sole or main residence of at least 90 per cent of its residents
A VAT Did you know?
Kangaroo steak is sold as food in shops – food is zero-rated, but the sale of live kangaroos is standard rated.