What type of VAT applies when selling goods to outside the EU?

When selling goods to outside the EU, the correct type of VAT that applies is zero-rated. This means that no VAT is charged on the sale of these goods, but the seller can still reclaim any input VAT incurred on related purchases.

The rationale behind this is to encourage exports and make goods more competitive in international markets. By applying a zero rate, the UK ensures that businesses selling to customers outside the EU can do so without adding VAT to their sales price, which can be a significant factor in pricing for foreign customers.

This zero-rated treatment is also consistent with international trade practices, where countries aim to not impose local consumption taxes on goods intended for export. Essentially, the exported goods are treated as if VAT had been included, thus allowing for tax neutrality in cross-border transactions. This is beneficial as it helps maintain a level playing field in international commerce.