Key facts
- No VAT is charged on exempt supplies.
- Exempt turnover does not count towards the VAT registration threshold.
- You cannot reclaim input VAT on purchases used to make exempt supplies.
- If you make a mix of taxable and exempt supplies, you’re “partially exempt.”
Which Goods and Services Are VAT Exempt
Exempt supplies are outside the VAT system. You don’t charge VAT on them, and they don’t count towards your taxable turnover. However, you also cannot reclaim the input VAT on purchases related to making exempt supplies.[1]
Main Exempt Categories
The principal exempt supplies are:[2]
- Insurance
- Financial services (banking, lending, share dealing)
- Education (by eligible bodies)
- Health services (by registered practitioners)
- Postal services (Royal Mail universal service)
- Burial and cremation
- Betting, gaming, and lottery
- Land and property (unless the seller has opted to tax)
- Subscriptions to trade unions and professional bodies
- Sport and physical education (by eligible bodies)
- Cultural services (museums, galleries run by eligible bodies)
- Fund-raising events by charities
Impact on Your Business
If you only make exempt supplies:
- You cannot register for VAT (you have no taxable supplies)
- VAT on your purchases is an irrecoverable cost
If you make a mix of taxable and exempt supplies, you’re partially exempt and must apportion your input VAT. See our Partial Exemption guide.[3]
Option to Tax (Land & Property)
For land and buildings, you can choose to “opt to tax” — this converts an exempt supply into a standard-rated supply. Useful for commercial property owners who want to reclaim input VAT on construction or renovation costs.
Key distinction: Exempt is not the same as zero-rated. Zero-rated supplies let you reclaim input VAT; exempt supplies do not.
Frequently Asked Questions
What is the difference between VAT exempt and zero-rated?
Both have no VAT charged on sales, but with zero-rated supplies you can reclaim input VAT on related purchases. With exempt supplies you cannot reclaim input VAT — it becomes an irrecoverable cost.
What are the main VAT-exempt categories in the UK?
The principal exempt supplies include insurance, financial services, education, health services, postal services (Royal Mail universal service), burial and cremation, land and property, and betting and gaming.
Does VAT-exempt turnover count towards the VAT registration threshold?
No. Exempt turnover does not count towards the £90,000 VAT registration threshold. Only taxable supplies (standard-rated, reduced-rated, and zero-rated) count.
What is partial exemption for VAT?
If your business makes a mix of taxable and exempt supplies, you are partially exempt and must apportion your input VAT — reclaiming only the portion that relates to taxable supplies.
Can I opt to charge VAT on an exempt supply?
Only for land and property. The “option to tax” lets you convert an exempt property supply into a standard-rated one, allowing you to reclaim input VAT on construction or renovation costs.
Further Reading
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Sources
- VAT rates — GOV.UK
- Exempt goods and services — GOV.UK
- Partial exemption (VAT Notice 706) — GOV.UK