What is VAT exempt?

Definition of a VAT exempt

Some sales of goods and services are exempt from VAT. That means if you sell these goods and
services you won’t charge your customers any VAT, and if you buy them there will be no VAT to
reclaim.

If you travel on business in your own vehicle, you can add up the miles travelled, multiply them by
HMRC’s set rate for that kind of vehicle and then include the result as a cost in your business’s
accounts. This will reduce the amount of profit your business will pay tax on.

FreeAgent is easy-to-use accounting software for small businesses and freelancers. Get started on a
30-day free trial!

If you make some exempt sales, you can’t reclaim VAT on any costs you incur while making those
sales. For example, a doctor’s surgery won’t be able to reclaim VAT on its accountancy fees, because
services provided by a doctor are exempt from VAT.

If your business only makes VAT exempt sales, it’s not allowed to register for VAT.

Don’t get confused between zero-rated VAT and VAT exempt sales. Zero-rated sales are VATable sales
- it’s just the rate of VAT on them is 0%!

Examples of VAT exempt goods and services

Many medical supplies and services are exempt from VAT. So are services provided by the Post Office
- so when you buy a book of stamps, you pay no VAT.

Got questions? Ask Emily!

FreeAgent's Chief Accountant Emily Coltman is available to answer your questions in the comments.