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Exempt vs Zero-Rated

Both result in no VAT charged — but the impact on your business is vastly different.

CRITICALMarch 2026 · 6 min read

Comparison

Feature Zero-Rated Exempt
VAT charged to customer 0% None
Input tax recovery ✅ Full ❌ Blocked
Registration required? Yes (if over threshold) Not counted toward threshold
Appears on VAT return? Yes (Box 1) Yes (separate box)
Examples Exports, basic food Finance, insurance, residential rent

🚨 Why This Matters

If you misclassify a supply as exempt when it should be zero-rated, you lose all input tax recovery. If you misclassify as zero-rated when it should be standard-rated, you under-collect VAT and face penalties. Getting the classification right is one of the most important VAT decisions.

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