Tax Exempt Invoice: How to Bill Without VAT or Sales Tax

A tax exempt invoice is an invoice that shows no VAT, GST or sales tax because the sale, the customer or the seller qualifies for an exemption. It still needs every normal invoice detail, plus one extra: a short, accurate statement explaining why tax is not charged. The wording depends on the reason, and getting it wrong can cost you the tax later.

This guide covers the main reasons an invoice may carry no tax, the difference between exempt and zero-rated wording, how to handle US exemption certificates and nonprofit customers, and how to set it up in the free invoice generator by setting the tax rate to 0.

Five reasons an invoice may have no tax

"Tax exempt" is often used loosely. In practice, an invoice without VAT or sales tax falls into one of five situations, and each one needs different wording.

Situation	Who it applies to	What the invoice should say
Seller not registered	Small businesses below the VAT or GST threshold	No tax line; optionally "Not registered for VAT"
Exempt supply	Certain goods or services the law exempts, such as many financial, insurance, health and education services in VAT systems	"Exempt from VAT" with the reason, where required
Zero-rated supply	Taxable items at a 0% rate, such as many exports and some essentials	VAT shown at 0%
Exempt customer	Buyers with an exemption certificate, such as resellers or qualifying organisations in US states	Exemption reason and certificate number
Reverse charge or out of scope	Some cross-border B2B services and specific sectors	"Reverse charge applies" or "Outside the scope of VAT", as appropriate

The first step is always to work out which of these applies. If you are unsure, ask a qualified accountant or tax adviser before you send the invoice.

Exempt vs zero-rated wording on a tax exempt invoice

In VAT systems, exempt and zero-rated are not the same, even though the customer pays no VAT in both cases.

• Zero-rated supplies are taxable at 0%. Show them with a VAT rate of 0% and a VAT amount of 0.00. Zero-rated sales count towards your VAT registration threshold, and you can usually reclaim VAT on related costs.
• Exempt supplies are outside the VAT charge. Do not show them as 0% VAT; describe them as exempt. VAT on costs that relate to exempt sales is generally not recoverable.

HMRC's VAT guide says that where a VAT invoice includes zero-rated or exempt goods or services, you must show a separate total for their values and make clear that no VAT is payable on them. In the EU, the VAT Directive requires an exempt invoice to refer to the legal provision for the exemption or otherwise indicate that the supply is exempt.

Our full comparison of zero-rated vs exempt VAT covers the cost differences and has mixed-rate examples. For reverse charge wording, see the reverse charge invoice guide.

Sample wording you can adapt

• Not registered: "No VAT charged. [Business name] is not registered for VAT."
• Exempt supply (UK): "Exempt from VAT: [brief description of the exempt service]."
• Exempt supply (EU): "VAT exempt under [article of the national VAT law or Directive that applies]."
• Zero-rated export: "Zero-rated export of goods. VAT at 0%."
• US exempt customer: "Sales tax exempt: resale. Customer certificate no. [number], [state], on file."
• US nonprofit: "Sales tax exempt: [state] exemption certificate no. [number] on file."

Do not copy legal references unless you have confirmed they apply. A wrong article number is worse than a clear plain-English reason.

US sales tax: exemption certificates and nonprofit customers

In the US there is no federal VAT. Sales tax is set by states and, in many places, local governments. Several states have no statewide sales tax at all, and many states do not tax most services. Our guide to sales tax on US invoices explains the basics.

When a customer claims an exemption, the burden usually falls on you as the seller to document it. The common cases:

1. Resale: a business buying goods to resell gives you a resale certificate.
2. Nonprofit or government buyer: qualifying organisations give you a state exemption certificate. Federal 501(c)(3) status alone does not automatically exempt a nonprofit from state sales tax.
3. Exempt use: some states exempt items used in manufacturing, agriculture or other specific activities.

Practical steps before you issue a tax exempt invoice to a US customer:

• Get the certificate before or at the time of sale, not months later.
• Check it is complete, signed, and valid for your state and the type of purchase.
• Put the certificate number and exemption reason on the invoice.
• Keep a copy with your records. If a state audits you and the certificate is missing or invalid, you may owe the uncollected tax.

Rules and forms vary by state, so check your state revenue department's guidance or ask an adviser.

UK charities and other "exempt" customers

Many UK suppliers assume charities do not pay VAT. In general they do. There is no blanket VAT exemption for charities, though some specific supplies to eligible charities can be zero-rated, often only when the charity gives you a written eligibility declaration. Similarly, being a public body or a small customer does not by itself make a sale exempt. The exemption normally depends on what you are supplying, not who is buying it. If a customer asks you to drop VAT, ask them which relief they are relying on and check HMRC's guidance before agreeing.

Worked example: tax exempt invoice for a nonprofit customer

A print shop in a US state that taxes printed materials prints 500 event programmes for a local nonprofit. The nonprofit provides a valid state exemption certificate. The normal combined sales tax rate at the shop's location is 7.25%.

Line	Qty	Unit price	Amount
Event programmes, 12 pages, full colour	500	1.80	900.00
Design adjustments to supplied artwork	2	45.00	90.00
Subtotal			990.00
Sales tax (0%, exempt)			0.00
Total due			990.00

Had the customer not been exempt, sales tax at 7.25% would have added about 71.78, for a total of roughly 1,061.78. The note on the invoice reads: "Sales tax exempt. [State] exemption certificate no. [number] on file, received 20 October 2026." The 7.25% rate here is only an illustration; use the sales tax calculator to work out amounts for your own rate, and check whether your state taxes each item at all.

Invoices without tax in other countries

The same principle, state the reason, applies almost everywhere, but the paperwork differs. A few examples, which you should confirm against the official guidance for your country:

• India (GST): a registered supplier making exempt supplies generally issues a bill of supply rather than a tax invoice. Our GST invoice guide covers when each document is needed.
• UAE (VAT): some supplies are exempt, for example certain financial services and some residential property, while others, such as many exports, are zero-rated. Our guide to UAE VAT invoice requirements lists the details a tax invoice needs.
• Pakistan (sales tax): exemptions are set out in the schedules to the sales tax law and are amended by finance acts, so check the current schedule before relying on one.
• Canada, Australia and New Zealand (GST/HST): each separates exempt or input-taxed supplies from zero-rated ones, with different consequences for claiming tax on costs.

If you sell across borders, the place-of-supply rules may mean no local tax is charged even though the sale is not exempt. That is a separate question from exemption and often needs specific invoice wording too.

Records to keep for every tax exempt invoice

An invoice without tax is the kind of document auditors look at closely, because it is where tax could have been under-collected. Keep these together for each one:

• A copy of the invoice as sent, with the exemption note.
• The customer's exemption certificate, resale certificate or eligibility declaration, where one applies.
• Any emails or correspondence in which the customer claimed the exemption.
• Your notes on why the supply is exempt or zero-rated, especially if you made a judgement call.
• For exports, proof that the goods left the country, such as shipping documents.

Retention periods vary. In the UK, VAT records are generally kept for at least six years; US states set their own periods for sales tax records. Our guide on how long to keep invoices has more detail.

How to create a tax exempt invoice in the generator

1. Open the USA invoice generator, the UK version or the main generator, depending on your location.
2. Fill in your details and the customer's legal name and address.
3. Add your line items as normal.
4. Set the tax rate to 0. The tax line will show 0.00.
5. In the notes, write the exemption reason using the wording that fits your situation, with any certificate number.
6. If you are not registered for VAT or GST, leave the tax number fields blank.
7. Download the PDF and keep it with the customer's certificate or declaration.

The generator applies one tax rate to the whole invoice. If one invoice would mix taxable and exempt lines, and your tax rules need separate totals for each, the simplest approach is to issue two invoices: one at the standard rate and one at 0% with the exemption note.

Quick check before you send

Run through these questions before you send any invoice with a zero tax line:

1. Which of the five situations applies: not registered, exempt supply, zero-rated, exempt customer, or reverse charge?
2. Does the note on the invoice use wording that matches that situation?
3. Do you hold the certificate or declaration that supports it, and is it current?
4. If the invoice mixes taxable and untaxed items, have you split them so each total is clear?
5. Have you checked anything unusual with your accountant, especially a first-time exemption?

Five minutes on these questions is much cheaper than paying uncollected tax out of your own margin after an audit.

Common mistakes on invoices without tax

• Calling a zero-rated sale exempt, or the other way round. They are treated differently in your VAT return.
• Leaving tax off without a reason. A tax exempt invoice with no explanation looks like an error to the customer and to an auditor.
• Trusting a verbal exemption claim. In the US, no certificate usually means no protection for you.
• Showing a VAT number when not registered, or charging VAT when you are not registered. Both cause problems.
• Using reverse charge wording for an exempt supply. They mean different things.
• Fixing a tax mistake by editing the original. Use a credit note and a new invoice. See how to correct an invoice.

Create your tax exempt invoice

A tax exempt invoice is an ordinary invoice with one important difference: it explains why no tax is charged. Work out which reason applies, use matching wording, keep any certificate or declaration on file, and confirm anything unusual with a qualified tax adviser.

When you are ready, open the invoice generator, set the tax rate to 0, add your exemption note and download the PDF.