The short version: VAT exempt means no VAT is charged on certain goods and services. Different from zero-rated, where VAT is charged at 0%.
What’s exempt?
Education and training, insurance, finance and credit, health services, fundraising events by charities, and subscriptions to membership organisations. There are others too.
Why does it matter?
If you only provide exempt services, you can’t register for VAT (even if your turnover exceeds the threshold). This means you can’t reclaim VAT on your purchases either.
What’s the difference from zero-rated?
Zero-rated items (like children’s clothes and most food) have VAT at 0%. Businesses selling them can still register and reclaim input VAT. Exempt items are outside the VAT system entirely.
Can it get complicated?
Yes. If you provide a mix of taxable and exempt supplies, you may only be able to reclaim part of your input VAT. This is called partial exemption and involves extra calculations.
Provide exempt services and confused about VAT? We can help you understand your position.
