How To: Sell Qualifying Goods at zero-rate

Table Of Contents

Introduction
Create the Zero-Rated Parent Item

Introduction

Where goods or services qualify for VAT zero-rating under Notice 701/6 (September 2003), you may need to sell them as zero-rated on a Sales Order while continuing to use the original stock-controlled item.
One way to achieve this is to create a non-stock-controlled "move with" parent item that links to the original stock item as a child. The new parent item is configured as zero-rated, while the original stock item continues to manage stock levels.

Create the Zero-Rated Parent Item

  1. Open a Stock screen. (Show me how)
  2. Open the Other Actions menu by:
    • Pressing F9, or
    • Clicking the drop-down arrow next to the green New button.
  3. Select Copy Stock Item and create a copy of the existing stock item.
  4. On the [ Stock | Detail ] tab, update the Stock Code for the copied item.
    Examples:
    • Add Z to the end of the stock code.
    • Add -ZERO to the end of the stock code.
  5. Update the Description so it clearly identifies the item as zero-rated.
    Example:
    • Original: Product A
    • New: Product A ZERO RATED
  6. Open the [ Stock | Accounting ] tab.
  7. Change the Tax Rate for the new stock item to the appropriate VAT zero-rated tax code.
  8. If required, review and amend the Sell Price so that it reflects the correct net value (exclusive of VAT).
  9. Set both the Safe Level and Min Level fields to 0.
  10. Open the [ Stock | Options ] tab.
  11. Untick Stock Controlled.
  12. Press Ctrl + S or click Save.
The new zero-rated parent item is now created.

Add the Original Item as a Move With Child

  1. Press Alt + E or click Edit.
  2. Open the [ Stock | Relationships ] tab.
  3. Add the original stock item as a Move With child item.
  4. Press Ctrl + S or click Save.

Update Price Lists

If you use price lists, update them to include the new VAT zero-rated stock item.
This ensures that users can select the correct version of the product when creating Sales Orders.

How It Works

When the zero-rated parent item is added to a Sales Order:
  • The VAT treatment comes from the zero-rated parent item.
  • The original stock-controlled item is linked as a Move With child item.
  • Stock movements continue to be recorded against the original stock item.
  • The Sales Order reflects the correct VAT treatment while maintaining accurate stock control.

Additional Information

This approach is particularly useful where only specific customers or transactions qualify for VAT zero-rating, allowing you to maintain separate standard-rated and zero-rated versions of the same product without affecting stock management.
For guidance on eligibility for VAT zero-rating, refer to HMRC Notice 701/6.

See Also


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