What is one example of zero rated supplies?

Children's clothing is classified as a zero-rated supply, meaning that it is subject to a VAT rate of 0%. This classification is designed to make essential items more affordable for families, especially those with children. By applying a zero rate, businesses do not charge VAT on the sale of children's clothing, but they can still reclaim any VAT paid on their related purchases or expenses associated with making those sales.

In contrast, other options listed do not qualify as zero-rated. Domestic fuel, while it may be subject to a reduced rate, is not zero-rated, and similarly, insurance services are exempt rather than zero-rated. Luxury cars are typically subject to the standard VAT rate, making them ineligible for zero-rating.