What is the difference between exempt and zero rate?
If you make exempt supplies you don't pay VAT but you can't recover VAT on your costs. There are 14 groups of services that are exempt. These stem from European Law. Additionally goods that have never been subject to an entitlement to recover VAT are exempt.
The zero rate means tax is chargeable but UK government has set the rate at 0%. The government can review this in any budget. There are 15 groups of goods and services that qualify for zero rating. If you make zero rated sales you are entitled to recover VAT on your costs as you would if the 5% or 17.5% rate applies. This means you may expect a repayment from HMRC each month.
Also see: Minimising the impact of VAT as a cost .