Which goods and services are zero-rated or exempt from VAT?

Zero-rated items (most food, children's clothes, books and newspapers) are still technically VATable but at 0%, so you must record them on your VAT return, while exempt items (such as insurance, certain financial services, and some education and health services) fall outside the VAT system entirely. The distinction matters because selling only exempt goods can affect how much input VAT you're allowed to reclaim. Because the rules have plenty of exceptions and grey areas, it's worth checking your specific products against HMRC's VAT notices or asking an accountant to review your sales categories.