What is the difference between ‘Zero Rated Expenses’ and ‘No VAT’ on Xero VAT settings?

‘Zero Rated Expenses’ in Xero VAT is designed for Zero Rated supplies (eg food) whereas ‘No VAT’ is designed for transactions that are ‘Outside the Scope of VAT’.

There is an important difference to the accuracy of the VAT between the two although there is no impact on the VAT liability. VAT returns require the total of expenditure for the period to be declared in Box 7. ‘Zero Rated Expenses’ transactions add to the total of Box 7 but ‘No VAT’ transactions do not.