Zero-rated goods in the UK: what eBay sellers of books, children's clothes and food should know

What are zero-rated goods in the UK?

Zero-rated goods in the UK are goods that are taxable for VAT but charged at the zero rate, which means no VAT is added to the price. They are still part of the VAT system: they count as taxable supplies, and a VAT-registered business that sells them can usually reclaim the VAT it pays on its costs. HMRC lists which goods fall into which rate in its guide to VAT rates on different goods and services.

Most eBay buyers never see the difference, because there is no VAT line on a zero-rated item. The difference shows up in the seller's accounts and VAT position.

For eBay sellers, zero-rated goods matter in two ways. They change how you price once you are VAT registered, and they still count towards the VAT registration test, which catches many book and children's clothing sellers by surprise.

This guide explains the general rules in plain words. It is not tax advice, so check your own products and situation with HMRC or a qualified accountant.

Which goods are zero-rated?

The UK has three VAT rates for goods and services: the standard rate, the reduced rate and the zero rate. gov.uk shows the current rates on its VAT rates page. Goods that eBay sellers often sell at the zero rate include:

• Most books and printed matter, such as books, newspapers, children's picture books and many printed maps and music.
• Children's clothes and shoes designed for young children, within the size rules HMRC sets.
• Many foods, such as basic groceries, though many food items are standard-rated.

Each category has exceptions, and the details matter. A book is usually zero-rated, but a diary or a colouring book may be treated differently. Children's clothing is zero-rated only within HMRC's definitions. Food has a long list of standard-rated items, including many snacks and drinks. Check HMRC's detailed guidance for every product type you sell rather than relying on the category name, and keep a note of what you checked.

What is the difference between zero-rated and exempt?

Zero-rated and exempt sales both leave the buyer paying no VAT, so they look alike from the outside. For the seller, they are very different.

The key line for eBay sellers is the third one. Because zero-rated sales are taxable supplies, they count when you work out whether you must register.

Do zero-rated sales count towards the VAT threshold?

Yes. A business must register for VAT if its VAT taxable turnover for the last 12 months goes over £90,000, or if it expects taxable turnover to go over £90,000 in the next 30 days alone, as gov.uk explains on its page about when to register for VAT. Taxable turnover includes zero-rated sales.

So a seller who sells only books, all at the zero rate, can still pass the £90,000 test. Sellers often assume that because no VAT is charged, VAT registration does not apply to them. It can, and late registration can lead to penalties.

Exemption from registration

HMRC may allow businesses that make only or mainly zero-rated sales to apply for exemption from VAT registration. It is something you apply for, not automatic, and HMRC decides. Before applying, look at whether registering would actually suit you, because of the reclaim point below. Our guide to the VAT threshold for eBay sellers explains how to track your rolling turnover.

Why can VAT registration help a zero-rated seller?

A VAT-registered business that makes zero-rated sales charges no VAT on those sales, but can usually reclaim the VAT it pays on its business costs. When most of your sales are zero-rated, the VAT you reclaim can be more than the VAT you owe, so HMRC pays the difference back to you.

For an eBay book seller, costs that often carry VAT include eBay fees, packaging, equipment, software and some postage services. Our guide to VAT on eBay fees explains how fee VAT shows on your invoices.

A worked example

Example: suppose a hypothetical VAT-registered seller sells only zero-rated children's books on eBay in one VAT period. The figures are invented for the arithmetic, not real rates or advice.

In this example registration puts money back in the seller's pocket each period. A seller who is not registered pays the same VAT on costs and cannot reclaim any of it. That is why the exemption from registration is not always the better choice.

Registration does bring work: VAT records, returns filed through software under Making Tax Digital for VAT, and care with the rate on every product. For a seller with small costs, the repayments may not be worth the effort. For a seller with large fee and packaging bills, they often are. Your accountant can compare the two using a few months of your real invoices.

What if you sell zero-rated and standard-rated goods?

Many sellers mix goods: books and stationery, children's clothes and adult clothes, food and kitchen items. If you are VAT registered, each sale needs the right rate.

1. Classify every product. Keep a list of your product types and the VAT rate for each, with a note of the HMRC guidance you relied on.
2. Set prices per rate. A standard-rated item needs a price that covers the VAT inside it; a zero-rated one does not.
3. Watch bundles. A bundle of zero-rated and standard-rated items may need the price split between them. Ask your accountant how to handle bundles you sell often.
4. Record the rate on each sale. Your bookkeeping should show sales by rate so your VAT return is right.
5. Review when you add products. New product types may carry a different rate from what you are used to.

HMRC's general VAT guide covers mixed supplies and delivery charges in more depth.

Which zero-rated goods do eBay sellers get wrong?

The category names sound simple, but the edges are where mistakes happen. These are the areas worth checking twice.

Books and stationery

Books are usually zero-rated, but not everything printed is a book for VAT. Items such as diaries and address books are treated differently from books, and products sold with a book, such as a toy or a craft kit, can change the treatment of the whole item. If you sell a mix of books and paper goods, check each product type against HMRC's guidance on printed matter.

Children's clothes

The zero rate covers clothing and footwear designed for young children within HMRC's size rules. A small adult size is not a child's size for VAT, even if it fits a child, and some items are excluded. Sellers of mixed lots that include adult and children's clothes need to split them correctly.

Food

Basic food is often zero-rated, but many items people think of as food are standard-rated, such as many sweets, crisps and soft drinks. Food sellers should check each product line rather than treating "food" as one rate.

Goods sent abroad

Goods sent from the UK to buyers outside the UK are usually zero-rated as exports, as long as you keep evidence that they left the country, such as proof of postage and tracking. That applies whatever the goods are, so a VAT-registered seller who ships abroad has another set of zero-rated sales to record correctly.

A quick checklist

• List every product type you sell and check its VAT rate in HMRC's guidance.
• Remember that zero-rated sales count towards the £90,000 registration test.
• Track your rolling 12-month taxable turnover every month.
• If you are mostly zero-rated and near the limit, compare registering with applying for exemption.
• If registered, reclaim VAT on business costs with proper invoices.
• Ask an accountant about bundles and mixed postage charges.