UK taxes compared How VAT rates have changed

Value Added Tax, or VAT, was introduced in the UK in 1973, replacing purchase tax. Originally, there was a single rate of 10%, but this has changed dramatically over the past two decades. 
VAT rates graphic

What is VAT?

VAT was already charged on goods and services in the European Community (Common Market), but when the UK adopted it the government introduced zero-rating for a wide range of products, including food, books, newspapers and children’s clothing. 

It is an indirect tax levied on producers and suppliers, rather than a direct tax, such as income tax or National insurance.

What do you pay VAT on?

The eligibility of products for zero-rating has caused many disputes over the years - most famously over Jaffa cakes, where HMRC contended that these were chocolate covered snacks and therefore liable for VAT, while the manufacturers successfully claimed they were cakes and, therefore, a zero-rated foodstuff.

A similar dispute raged over M&S marshmallow tea cakes, which were also found to be VAT free, and Pringles, which HMRC eventually determined were crisps - and therefore subject to VAT. 

Find out more: What you do - and don't pay VAT on - an in-depth guide

VAT rates over the years

By 1975 the government had introduced a higher rate of VAT for ‘luxury’ items such as radios, TVs, hi-fi equipment, furs and jewellery. Initially applied at 25%, this was reduced to 12.5% in 1976/77.

  • Standard rate VAT actually fell in the early years, to 8%, where it stayed until 1979.
  • In 1979/80 the two-tier system was replaced by a single rate of VAT at 15%. 
  • This remained in place until 1991/92, when it was increased to 17.5%.
  • 2009 saw a temporary reduction in VAT to 15%, but in 2010 it reverted to 17.5%.
  • A final VAT rise took place in 2011/12, when the standard rate rose to 20%.
  • A limited range of items, such as domestic heating fuel and children's car seats, qualify for 'reduced rate' VAT -currently 5%. 

How much revenue does VAT generate?

The amount of revenue generated by VAT has risen considerably in recent years. It is now the third largest source of income for HMRC, delivering £100bn in 2012/13. 

In 2000 this figure was £58.5bn, in 1990 £30.9bn and in 1980 £11.1bn.   

Find out more: UK taxes compared - see how much each tax raises for HMRC 

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