AAT Indirect Tax Level 3 Practice Test 2025 – Complete Exam Prep

Zero-rated supplies in VAT are described as supplies that are taxable at 0% VAT. This means that while these goods or services are indeed subject to VAT, the rate applied to them is 0%, allowing suppliers to charge no VAT on their sales. A key characteristic of zero-rated supplies is that businesses making these supplies can reclaim any VAT they have incurred on their purchases related to those supplies, which helps alleviate tax burdens for both suppliers and consumers.

In contrast, goods or services that are exempt from VAT are different because, with exempt supplies, no VAT is charged on sales, and businesses cannot reclaim VAT incurred on related purchases. Items that have a VAT refund available only would not necessarily fall under the definition of zero-rated supplies and could instead refer to various special schemes or factors. Lastly, supplies that are charged at the lowest VAT rate typically do not apply to zero-rated supplies since zero-rated implies no rate is charged, not the lowest. Therefore, the definition of zero-rated captures the essence of these supplies correctly as being subject to VAT at a rate of 0%.