Zero-rated vs exempt VAT: what is the difference?
Neither category normally adds VAT to the customer’s bill. The distinction matters for registration and reclaiming VAT on business purchases.
| Question | Zero-rated | Exempt |
|---|---|---|
| Taxable turnover? | Counts towards registration | Generally excluded |
| VAT on related costs? | Normally recoverable if registered and conditions are met | Generally irrecoverable, subject to partial exemption rules |
Check the exact product or service
Many books and qualifying children’s clothes are zero-rated. Insurance is generally exempt. A digital product can have different treatment depending on what is supplied and where the customer is based. Check the specific classification before invoicing. If you make both taxable and exempt supplies, review HMRC’s partial exemption guidance.
Use the VAT calculator when your supply is confirmed to be standard-rated at 20%.
Official guidance · Read the GOV.UK guidance