New Forest


50 Years of VAT

VAT has now been in existence for 50 years. It was introduced in April 1973 as a “simple tax”, and now raises over £150bn per year, more than the combined total of Corporation Tax, CGT, IHT and SDLT.


VAT is a type of consumption tax, levied at each stage of production and distribution, based upon the “value added” to goods and services.

This model is likely to change over the coming years to minimise fraud, with VAT only being collected at the end of the chain when the consumer purchases products and services.

The standard rate of VAT has been very stable at 20%, being unchanged since January 2011 when it increased from 17.5%. There are reduced rates (5% or 0%) for certain items including some food, books, and children’s clothing. Exempt supplies are subtly different from zero rated supplies and cover things such as the letting of residential property and financial services.

The mix of rates and exemptions (outlined here) have made VAT increasingly complex, particularly when a supply includes multiple rates.


VAT’s origins can be traced back to France in the 1950’s, where it was devised to avoid double taxation and promote economic efficiency. It was adopted by the then European Economic Community (EEC) in 1967 as a common system of taxation for its member states.

The tax was implemented in the UK in 1973 as part of the country’s entry into the EEC, replacing a purchase tax that was imposed on the wholesale price of luxury goods.

Brexit removed the UK from the European Union VAT system from 1 January 2021, but VAT looks set to continue in the UK. Since Brexit the UK has greater flexibility to decide on VAT policy and rates. The first example being to zero rate women’s sanitary products from 1 January 2021.

There are often calls for politicians to use VAT as a stimulus for specific sectors or the economy generally, but this is rarely acted upon, with the recent Covid support for the hospitality industry being a notable exception.

VAT was the first tax to digitise under Making Tax Digital.

Famous quote

Lord Justice Sedley, after the Court of Appeal case of Royal & Sun Alliance, is quoted as saying:

“Beyond the everyday world, lies the world of VAT; a kind of fiscal theme park in which factual and legal realities are suspended or inverted.”

The first 50 years of VAT have seen it’s growing importance and it looks set to be around for the next 50 years.

For further information on our VAT Returns Service, please contact Alan Rolfe on 023 8046 1235.

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