Zero-rated vs exempt VAT: the difference that decides what you reclaim

On the invoice they look identical. In your bank account they are opposites.

Last reviewed 1 September 2026

Both mean your customer pays no VAT. That is where the similarity ends.

The line that matters is the third one

A baker selling zero-rated bread charges no VAT and still reclaims the VAT on the oven, the van and the electricity. A dentist making exempt supplies charges no VAT and absorbs the VAT on the chair, the premises and the equipment as a straight cost.

Same blank space where the VAT would go on the invoice. Opposite consequences, and the difference runs to thousands a year on any business with real overheads.

Roughly what sits where

• Zero-rated — most food, children’s clothing and footwear, oral medicines, books, exports.
• Exempt — financial services, insurance, medical and dental, education.

As with every list of this kind, the specific item is Revenue’s to answer rather than a summary’s. The rates page explains the structure and links the searchable database.

Why it decides whether you register at all

A business making only exempt supplies generally cannot register for VAT and cannot recover input VAT — there is nothing to account for. A business making zero-rated supplies often registers voluntarily, below the threshold, precisely because registration is money back: nothing charged on sales, everything reclaimed on costs.

If you supply both kinds, you are partly exempt, and the VAT on shared costs has to be apportioned. That is the point at which this stops being a page and starts being a conversation with an accountant.