VAT

How much does it raise?

It raised more than the year before, but the other taxes grew faster, so its share of the total fell.

How does it work?

VAT is charged at each stage of production, but each business reclaims the VAT it paid on its inputs, so the tax collected in total is just the rate applied to the final price. That is the mechanism that makes it hard to avoid and cheap to administer.

Three rates apply, and the law rather than the price decides which one a thing falls under.

Rates: GOV.UK, VAT rates. Checked by hand 22 September 2026.

Zero-rated and exempt are not the same thing, and the difference matters to businesses. A zero-rated seller charges no VAT but can still reclaim the VAT on their costs. An exempt seller charges none and cannot reclaim, so the tax gets stuck in the middle of the chain.

The zero rates are what make VAT less regressive than it looks. Poorer households spend more of their income on food, energy and children’s clothes, all of which are zero- or reduced-rated. Measured against spending rather than income, VAT is close to flat.

A £60 pair of shoes

VAT at 20% is always exactly one sixth of the price you pay, never one fifth. That is the most common arithmetic mistake about it.

Add or remove VAT on your own figures

How has it changed?

How it got here, and why each change was made:

• 1973VAT replaces Purchase Tax when the UK joins the European Economic Community, which required it. It starts at 10%.
• 1979Nearly doubled from 8% to 15% to pay for large cuts in income tax, a deliberate shift from taxing earning to taxing spending.
• 1991Raised to 17.5% to pay for cutting the poll tax.
• 2008Cut to 15% for thirteen months as a stimulus during the financial crisis.
• 2011Raised to 20%, where it has stayed.
• 2025Private school fees become standard-rated at 20%, having previously been exempt as education. Around 7% of UK children attend private schools.

Where does the money go?

Nowhere in particular. VAT is not earmarked. It goes into the Consolidated Fund with almost every other tax and is spent on whatever the government of the day decides. Anyone who tells you a particular tax "pays for" a particular service is describing an illustration, not a rule.

Because it is not earmarked, the only honest way to show what it pays for is by proportion. If vat receipts of £179.9bn were spent in the same proportions as all public spending in 2025-26, they would break down like this. It is an illustration of scale, not a statement about where those particular pounds went.

See for every £100 of tax for the full picture.

Is it different where I live?

Scotland

VAT cannot be devolved under EU-derived rules that still apply, so the rate is the same across the UK. A share of Scottish VAT receipts is assigned to the Scottish budget, but Scotland cannot change the rate.

Does it change what people do?

The 2008 cut to 15% is one of the better-studied stimulus measures. The evidence suggests retailers passed most of it on and it did lift spending, but modestly relative to its cost, partly because a temporary cut is a weak signal when people expect it to reverse.

When a tax rise stops raising money looks at the cases where the effect has been large enough to move the revenue.

How does that compare with other countries?

In 2024 the UK raised 7.0% of GDP this way: fifth of the 12 countries compared here.

At 20%, the UK standard rate is close to the EU average and below France, Italy and the Nordic countries. What is unusual is the breadth of the UK’s zero rates: most countries tax food at a reduced rate rather than at nothing.

What are the arguments?

Both columns are set out as their strongest case, not as a preferred answer and a strawman. See how this site handles contested questions.