Zero-rated VAT is applied to things like food, children’s clothes, and books etc. Also if selling abroad, say to the US, your goods will be Zero-rated. If you are VAT registered, you can reclaim the VAT on your overheads and costs related to those Zero-rated sales – i.e. machines to make children’s clothes.  VAT Exempt supplies (sales) covers things like rent of a house and health care insurance – and, in contrast, you cannot claim VAT back on costs relating to those VAT Exempt sales.