When dealing with VAT it's important that you are aware of the distinction between 0% and N/A VAT:

• 0% means there is a VAT element (although it's 0%) so the NET amounts on the transactions will be included to the VAT report.
• N/A is any sale that falls outside the scope of VAT.  NET amounts will not be included in the VAT report.

CLASSIFYING YOUR TRANSACTIONS:

• Zero rated goods - Set VAT to 0% so there's no charge.  However you still must show this VAT information on your invoices, so the net amount is included in your VAT Return.  Eg: trains & tubes, some food, scheduled flights.
• Exempt goods - Set VAT to 0% so there's no charge.  You don't include them in your VAT accounts.  Normally you cannot claim back the VAT on related purchases.  Including Sales/purchases net amount in VAT return Box 6 & 7.  Eg: postal supplies provided by the post office (eg, you buying stamps), Insurance, Financial Services/bank charges.
• Outside the scope – Set VAT rate to N/A.  Some goods and services aren't covered by the UK VAT system at all - they're outside the scope of VAT.  Not to be included in VAT return.  Eg: donations to charity, unregistered suppliers, payroll transactions.

FURTHER READING

This article from HMRC will provide further clarification on handle VAT Exempt goods and goods outside the scope of VAT: http://www.hmrc.gov.uk/vat/forms-rates/rates/rates.htm.

ADJUSTING THE DEFAULT RATES:

You can adjust the default VAT rates by going to Settings > VAT Settings > Default VAT Rate.  This page is also found via: Settings > Invoice Options > Tax Settings.  You can configure the default VAT rate on an individual Sales Type (Sales > Sales Types), Outgoing Type (Purchases > Outgoing Types) or Transaction Type (Bank > Transaction Types).  Configuring here, within Sales, Outgoing or Transaction Type will override the settings within Settings > VAT Settings.