Same cash amount, different categories
At the till, a zero-rated and an exempt £100 transaction may both total £100. In your records they are not interchangeable. Zero-rated supplies are taxable at 0%; exempt supplies are a distinct category. Outside-scope transactions sit outside the relevant VAT charge.
Why classification matters
The category can affect taxable turnover and recovery of related purchase VAT. A business with mixed activities may need a partial exemption calculation. Do not assume that selecting 0% in a calculator resolves the accounting or registration treatment.
A useful records workflow
Keep a clear tax-treatment column in your sales records, separate from the numeric rate. Save the reason and supporting guidance for unusual classifications. When checking a mixed invoice, review the transaction description before looking at its tax amount.
Questions to resolve
What exactly was supplied? Where does the transaction take place for VAT purposes? Does a relief apply and is its evidence available? Ask those questions before copying the treatment from another business’s invoice. A calculator confirms arithmetic only.
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FAQs
What is the difference between zero-rated and exempt?
Zero-rated supplies are taxable supplies charged at 0% VAT — they count towards your taxable turnover and let you reclaim VAT on related costs. Exempt supplies are outside VAT: you charge no VAT, they do not count towards the registration threshold, and you cannot reclaim VAT on the costs of making them.
What are some common zero-rated items?
Most food, children's clothes and shoes, books and newspapers, new homes, exported goods and most passenger transport are zero-rated at 0%.
What are some common exempt services?
Insurance, many financial services, health and dental care by registered professionals, education and training by eligible providers, and most land and property rents (unless the landlord has opted to tax) are exempt.
Why does the distinction matter for registration?
Only taxable turnover — standard, reduced and zero-rated sales — counts towards the £90,000 registration threshold. A business selling only exempt services does not register for VAT on the strength of those sales, however large.
What is partial exemption?
If you make both taxable and exempt supplies, you are partly exempt: you can only reclaim the input VAT that relates to your taxable supplies, using a partial exemption method, and exempt input VAT below the de minimis limits (no more than £625 a month on average and no more than half of all input VAT) can still be recovered in full.
Official sources
Sources checked: 2026-09-26. Check the official guidance for later changes.
Educational information and estimates. These tools do not submit VAT returns or determine the treatment of a specific transaction.