Stock - Zero Rating Goods and Services

HM Revenue & Customs Notice 701/6 (September 2003) says that in certain very limited circumstances (Charity funded equipment for medical, veterinary, etc. uses) it is possible to zero-rate goods and services. The notice explains:

  • when goods and services purchased with charitable or donated funds by eligible bodies can be zero-rated;
  • when goods and services purchased by a third party for donation to an eligible body can be zero-rated;
  • what is an eligible body for the purposes of this relief; and
  • the conditions that must be met before goods and services can be zero-rated.

A separate supplement, which contains sample declarations for completion when qualifying goods and services are purchased by (or for donation to) eligible bodies, is also available.

Supplier's responsibilities

According to HM Revenue & Customs if you are a supplier, you need to see evidence before you can zero-rate a supply of qualifying goods to, or for donation to, an eligible body.

"It's your responsibility to ensure that all the conditions for zero-rating are met. Ideally, you should obtain a written declaration of eligibility from your purchaser. The declaration should be separate, or clearly distinct from, any order or invoice for the purchase.

"The declaration should include enough information to show that all the conditions for zero-rating have been met. The evidence needs to be specific and detailed, and you must keep it with your records."

Source: VAT for charities and not-for-profit organisations: introduction - accessed on 10 January 2011.

How this applies to Khaos Control

On the Customer/Supplier screen's General tab there is a "Company Pays Tax" checkbox.

Although it is difficult to imagine the circumstances in which this checkbox would NOT be ticked, it appears that people have unticked the box thinking that this will result in all Sales Orders being zero-rated for VAT purposes. This is not the case.

Unticking the "Company Pays Tax" checkbox causes Khaos Control to treat all Sales Orders as being exempt from VAT. Running Health Check will list all Customers/Suppliers with this checkbox unticked.

One obvious difference between zero-rated and exempt supplies is that the former are included on your VAT Return (also EC Sales List and Eurostat reports, where appropriate), whereas VAT exempt supplies are not.

See also

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