European Union Value Added Tax - Legacy Derogations

Legacy Derogations

Some goods and services are "zero-rated". The zero-rate is a positive rate of tax calculated at 0%. Supplies subject to the zero-rate are still "taxable supplies", that is, they have VAT charged on them. In the UK, examples include most food, books, medications, and certain kinds of transport. The zero-rate is not featured in the EU Sixth Directive as it was intended that the minimum VAT rate throughout Europe would be 5%. However, zero-rating remains in some Member States, most notably the UK and Ireland, as a legacy of pre-EU legislation. These Member States have been granted a derogation to continue existing zero-rating but cannot add new goods or services.

The UK also applies the lower rate on some products depending on how the supply is being made; for example, milk products bought from a retailer are subject to VAT at 0% rate, but milk drinks bought to be drunk in a restaurant are subject to VAT at the standard 20% rate.