Summary
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Quaderno’s UK VAT codes guide (updated October 2025) explains that VAT codes define how much tax applies to each purchase and sale, ensuring businesses charge customers correctly and file accurate returns. It sets out the four core categories: Standard Rate (20% “S”, the default for most goods and services), Reduced Rate (5% “R”, e.g. energy-saving materials and children’s car seats), Zero Rate (0% “Z”, e.g. babywear and printed brochures), and Exempt (e.g. medical, education and insurance). [quaderno.io]
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The guide highlights the crucial—and frequently misunderstood—distinction between zero-rated and exempt supplies. Zero-rated goods remain within the VAT system, so suppliers can still recover input VAT on related costs; exempt supplies fall outside VAT entirely, meaning no input VAT recovery. A wholly exempt business generally cannot register or reclaim VAT, and businesses making a mix of taxable and exempt supplies can recover input VAT only proportionally, subject to de minimis rules. [quaderno.io], [unfiled.co.uk]
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It also flags the UK’s reverse-charge mechanism (applying only where both parties are UK VAT-registered) and warns that codes change with policy updates—so staying current matters. Correct classification is essential: misclassifying a standard-rated supply as zero-rated means under-charging VAT and owing HMRC the shortfall, while over-charging complicates the return and customer pricing. The guide notes VAT’s complexity across food and edge-case items, recommending automation to apply codes consistently. [quaderno.io], [vatcalculator.com]
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