Zero-rated supplies are goods or services that have a GST/VAT rate of 0%. The seller charges no GST/VAT but can still claim input tax credits on related purchases.
Zero-rating is an important concept in GST/VAT systems. Zero-rated supplies are taxable supplies but at a rate of 0% - meaning the seller does not charge GST/VAT to the customer, but the seller can still claim input tax credits (ITCs) on the GST/VAT they paid on purchases related to making those zero-rated supplies. This is different from exempt supplies, where no GST/VAT is charged AND the seller cannot claim ITCs on related purchases. The distinction matters because it affects your GST/VAT recovery position. Common zero-rated items include exports of goods and services, basic food items (in some countries like Australia and the UK), certain medical supplies and educational materials. Correctly identifying zero-rated transactions is essential for accurate GST/VAT reporting. Claiming standard-rate when zero-rate applies means you overcharged the customer. Not recognising zero-rating means you might lose ITC entitlements. SortBooks accurately identifies zero-rated transactions based on the nature of the supply and your customer's location.
SortBooks helps with the bookkeeping behind zero-rated by connecting to your Xero account and using AI to suggest the right account for transactions sitting in catch-all accounts, learning from your own past coding. Instead of fixing zero-rated by hand, you review each suggestion, approve it, and SortBooks updates Xero, GST code included. Then ask the AI CFO about your numbers, using live Xero data.
GST is a broad-based consumption tax applied to most goods and services. Businesses collect GST on sales and claim credits for GST paid on purchases, remitting the net amount to the tax authority.
VAT is a consumption tax charged on goods and services at each stage of production and distribution. Businesses collect VAT on sales and reclaim VAT on purchases, remitting the net amount.
An input tax credit is the GST/VAT you paid on business purchases that you can claim back from the tax authority. It offsets the GST/VAT you collected on sales.
A tax invoice is a document that includes GST/VAT information and your registration number. It is required for customers to claim input tax credits on their purchases from you.
Connect Xero, check the AI's suggestions and approve the changes. SortBooks updates Xero for you.