Standard-rated means VAT is charged at the normal rate (usually 20%). Zero-rated means VAT is charged, but at 0% - it is still a taxable supply. Exempt means the sale is entirely outside the VAT system. The distinction matters most for whether you can reclaim VAT on related purchases.
Standard-rated: the default
Most goods and services in the UK are standard-rated. Unless something specifically qualifies as reduced-rated, zero-rated, or exempt, assume standard rate applies and charge VAT at the current standard rate.
Zero-rated: taxable, just at 0%
Zero-rated supplies (most food, children's clothing, and books are common examples) are still "within the VAT system" - you show them on your VAT return, and crucially, you can still reclaim VAT on purchases related to making that zero-rated sale. This is the detail people most often get wrong: zero-rated is not the same as VAT-free in every sense, it just means the rate charged is nil.
Exempt: outside the VAT system entirely
Exempt supplies (certain financial services, insurance, and some education and healthcare are common examples) sit outside the VAT system altogether. If you only make exempt sales, you generally cannot register for VAT at all - and if you make a mix of taxable and exempt sales, you can only reclaim a proportion of your input VAT, calculated under "partial exemption" rules.
Why this actually matters day to day
A business making only zero-rated sales can still register for VAT and reclaim input VAT in full
A business making only exempt sales cannot register for VAT at all
A business mixing taxable and exempt sales has to apportion its input VAT reclaim - a genuinely fiddly calculation worth getting an accountant to check
Getting the rate wrong on an invoice (charging 20% on something zero-rated, or vice versa) is a common, correctable mistake - but worth fixing quickly, since it affects both your VAT return and your customer's own reclaim if they are VAT registered
Invoito lets you set the VAT rate per line item, including 0% for zero-rated items, so a single invoice can correctly mix standard-rated labour with zero-rated materials without any manual recalculation.
Is zero-rated VAT the same as VAT-exempt?
No. Zero-rated is a taxable supply at 0% - you can still reclaim related input VAT. Exempt sits outside the VAT system entirely, and you generally cannot reclaim input VAT related to exempt sales.
Can I reclaim VAT on purchases used to make zero-rated sales?
What happens if my business makes both taxable and exempt sales?