VAT Exemptions

In most cases, if a supply is exempt from VAT, it is not allowed to deduct the VAT paid (input VAT) on goods and services purchased in order to make that supply. 
 
Example: Public postal services are exempt from VAT. Hence, people who send a parcel via public post are not charged VAT, but the post office has paid VAT on its inputs: the vans it uses, the post boxes it buys, and all the other things. It cannot reclaim or deduct this VAT. Thus, a part of the postage for sending the parcel represents paying for this ‘hidden’ VAT.  

No. 
 
For some exempt transactions, such as the export of goods from the EU to third countries and for intra-EU supplies, there is a right to deduct input VAT. These are sometimes called ‘zero-rated’ transactions since the result is that there is no residual VAT in the final price. 
 
However, it is important to distinguish between these transactions, which are best described as ‘exemptions with a right to deduct’, and ‘true’ zero-rated transactions. 
 
Zero-rated transactions cover specific goods or services (e.g. books). This means that the final price charged to the consumer does not include VAT, but it also means that the VAT paid on the inputs that go towards producing the book are deductible, so there is no residual (or ‘hidden’) VAT in the final price.