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UK VAT Rate History 2024

UK VAT Rate History 2024:

VAT is abbreviated as Value-added tax, applied to commodities and services at each point of the supply. As opposed to income tax, VAT is based on consumption. Therefore, it is levied on every purchase. The History of VAT is defined as the taxation system used in almost all European countries, which increases their revenue collection.

When was VAT Introduced to the world?

During the world wars, Germany and France were the first Nations to introduce a value-added tax to the rest of the world. German entrepreneur Wilhelm Von Siemens gave the first value-added tax proposal in 1918. However, it was first implemented in France in 1954 after a successful experiment in its colony of the Ivory Coast. Therefore, Maurice Laure, joint director of the France tax authority, adopted VAT on April 10, 1954.  The primary purpose of introducing it was to eliminate the cascading effect.  It initially targets big firms but expanded to all business sectors over time.

History of VAT in the UK:

Every country has its tax policy. Therefore, the UK government also charges VAT on purchasing goods and services; Firstly, it was introduced in 1973 to replace the purchase tax. The purchase tax rate differed depending on the luxury of the goods. It was applied to an item’s wholesale price, which burdened the consumer. 

Therefore, after joining the European Union, the United Kingdom replaced the purchase tax with VAT in 1974 primarily a European creation. Initially, the standard VAT was set at 10%, which marked changes over time.  Every successive government has introduced different vat rates on fuel and luxury goods since 1974. Additionally, they were able to maintain a variety of products at different VAT rates. After the general election of 2010 in the United Kingdom, the standard VAT rate was fixed at 20%.

Three VAT rates and a reverse charge are used for construction services work in the UK. Therefore, it is essential to understand that you must apply for VAT registration if its annual threshold exceeds the limit of 85,000 euros. It eventually provides immense opportunities for your business to become market-competent.

Once you get the VAT number, you can charge tax on goods and services purchased by customers. So, all registered businesses pay VAT on the total price of their goods and then collect it from customers, which goes directly to HMC. In this way, value-added tax has become one of the largest revenue collections in the UK.

History of VAT rates:

The following table shows historic standard VAT rates since 1974.

  FromToStandard rate
1 April 1974July 1974      10%
July 197417 June 1979        8%
18 June 197918 March 1991        15%
19 March 199130 November 2008        17.5%
1 December 200831 December 2011        15%
4 January 2011 Present            20%
History of VAT rates

History of VAT Rates in the UK?

Three rates are working in the United Kingdom: the standard rate of 20%, a reduced rate of 5%, and a 0% vat rate. 

Pros and Cons of VAT

Pros

There are the following reasons which help you to register for the VAT taxation system.

  • A Cascading effect generally means paying taxes at every stage of the supply chain. Subsequently, It increases the cost of goods and creates hurdles for emerging businesses. Therefore, Value-added tax is aimed at eliminating the cascading effect on purchases.  It enables you to pay tax on the purchase of goods and reduces the burden on the end consumer.
  • Self-assessment is a government-determined policy where taxpayers are responsible for paying certain taxes within the due dates. Similarly, VAT-registered businesses can deliver the correct taxes to HMRC by calculating their annual turnover. It ultimately brings more transparency to taxation.
  • Reduces tax evasion: Tax evasion is less likely to happen in value-added tax due to its effective administrative policy.  It is simple to administer when compared with sales tax. Therefore, it raises the revenue collection of the UK government.
  • Transparency: The Vat system is very transparent because every registered business is liable to issue invoices containing all the details about the tax charged on a product and the amount paid back to the government.

Cons   

Although value-added tax is very beneficial for the government to collect revenues efficiently,  it has the following cons;

  • Costly billing system: VAT is based on the billing system, so generating more bills becomes more costly than what you are reclaiming. Therefore, its implementation is expensive.
  • Regressive approach: Those who oppose the Value-Added Tax (VAT) contend it is a regressive system wherein the wealthy and disadvantaged pay the same tax rate on purchased goods. Although large enterprises benefit from value-added tax, it is an obstacle for small businesses to become market-competent.
  •  Exemption policy: VAT does not apply to food items, relieving the food industry. Due to such exemptions, the value-added tax could be more efficient.

Conclusion

To conclude the value-added tax is a consumption tax, introduced first in France and later adopted by all European countries. It was implemented to replace the purchase tax, burdening the end consumer. Which is currently serving the most significant revenue collection in the United Kingdom. VAT is contrary to the old purchase tax as it is applied to purchasing goods and services instead of the wholesale price. In this way, it reduces the burden on the end consumer. However, opponents believe it is very costly for emerging businesses due to its billing system. 

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VAT Calculator UK

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