They look similar on an invoice and behave very differently. Zero-rated supplies are taxable at 0% — most food, children’s clothes, books, new residential construction — and because they are taxable you can still reclaim input VAT, which is why a zero-rated business often reclaims more than it pays. Exempt supplies, such as insurance, most financial services, health services and much of education, are outside the tax entirely and carry no right to reclaim related input tax. Outside the scope means the transaction is not a VAT supply at all — wages, dividends, most grants. The consequences are real: zero-rated turnover counts towards the £90,000 registration threshold, exempt turnover does not, and getting this wrong distorts both your returns and your registration position.