What is the difference between exempt and zero rated service

  • Overview


Zero rated supply is a taxable supply which is charged at the rate of 0% VAT while exempt supply is a non-taxable supply (i.e. VAT cannot be charged).


The difference between exempt and zero rated goods/ services is that input tax credit (the VAT paid on business inputs) can be recovered where such business inputs are used in making 0% supplies whereas no such recovery is allowed if business makes an exempt supply.


Businesses making exempt supplies will incur a real VAT cost, impacting on their existing cost structure and putting upward pressure on their pricing. The zero rate is a benefit given by the Government to certain businesses and in future the Government may decide to levy a higher percentage of Tax.


Check out Do all businesses need to register under VAT ?

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