What is VAT exempt?
VAT exempt goods and services are outside the scope of VAT altogether. Unlike zero-rated supplies, exempt supplies are not taxable supplies at all, so no VAT is charged on them and they do not count towards a business's taxable turnover for VAT registration purposes. Common examples of exempt supplies in the UK include most financial services, insurance, healthcare provided by registered professionals, and certain education and training.
Zero-rated vs exempt: why it matters for registration
The key practical difference is registration. A business making only exempt sales cannot register for VAT, even voluntarily, and cannot reclaim any input VAT on its costs. A business making zero-rated sales, by contrast, is making taxable supplies, so it must monitor its taxable turnover against the VAT registration threshold in the usual way, can register once required, and can reclaim input VAT on its purchases as normal. A business making a mix of taxable and exempt sales is described as partly exempt, which brings its own, more complex VAT recovery rules.
Related terms: VAT, Zero-Rated VAT, Taxable Turnover, VAT Registration
VAT rules depend on the nature of transactions and individual circumstances. This glossary provides general information and is not personalised tax advice.