Happy 50th birthday to VAT
Saturday 1 April marked the 50th anniversary of value added tax being introduced in the UK. It was first introduced after the UK joined the European Economic Community (EEC), replacing Purchase Tax which was a tax on certain luxury goods.
The Office for Budget Responsibility expected to raise £156.7 billion in VAT in the 2022/23 tax year. This is equivalent to around £5,500 per household and 6.3 % of national income https://obr.uk/forecasts-in-depth/tax-by-tax-spend-by-spend/vat/ .
When VAT was introduced in April 1973 its initial rate was 10% which applied to most goods and services. In 1974, the standard rate was reduced to 8% but a higher 25% rate was also introduced which applied to petrol and certain luxury goods. This was replaced in 1979 with a 15% rate, replacing both the 8% and 25% rates. In 1991, the standard rate increased to 17.5% and reduced to 15% in 2008 but reverted back to 17.5% in 2010.
The current standard rate of 20% has been around since 4 January 2011. Alongside the standard rate we also have 0% rate which applies to certain goods such as most food and children’s clothing and a reduced rate of 5% for specific supplies such as children’s car seats and home energy.
VAT can be a very complex tax so please get in touch with any questions you have.