Glossary · UK
What is Exempt Supplies (VAT)?
Goods and services on which no VAT is charged at all, such as most financial services, insurance, health and education, distinct from zero-rated supplies which are still technically taxable.
Full Definition
Exempt supplies are goods and services that fall completely outside the scope of VAT charging -- no VAT is added to the price, whatever it might otherwise be, and the sale does not count as taxable turnover at all. Common examples include most financial services and insurance, health and welfare services provided by registered professionals, education provided by an eligible body, and the sale or long lease of most residential property (commercial property can instead be brought within VAT if the owner exercises an option to tax). Exempt supplies are often confused with zero-rated supplies -- such as most food, children's clothes and books -- but the two are treated very differently under VAT rules: a zero-rated supply is technically still a taxable supply, just charged at 0%, so it counts toward the VAT registration threshold and the seller can normally reclaim input VAT on related costs, whereas an exempt supply does not count toward the registration threshold and generally blocks the seller from reclaiming input VAT on costs directly related to making it. A business that makes only exempt supplies cannot register for VAT at all, and one that makes a mix of taxable and exempt supplies is "partially exempt", needing to apportion its input VAT recovery between the two under the partial exemption rules.