Transactions need to be allocated certain VAT rates in order for the VAT return to be correct when it is submitted to HMRC. Here are some examples of what to chose.
(1) Standard rated (20%): this is the standard rated VAT and the vast majority of transactions will have this rate applied.
(0) Zero-rated (0%): these are potentially vatable items but currently have the VAT rate 0. Items such as food, books, transport and water are items that would be 0 rated.
(2) Exempt: this items are exempt from VAT altogether. Items such as insurance, postal services, finance, education and healthcare.
(4) Non Vatable: these items do not appear on the VAT return at all and would include wages, tax payments, dividends.