What is the standard rate of VAT under section 2 of the Value Added Tax Act 1994?

The standard rate of VAT is 20%. This rate applies to the supply of goods or services within the UK, calculated by reference to the value of that supply, and to the importation of goods into the UK, calculated by reference to the value of those goods as determined under the Act.

Can the Treasury change the UK VAT rate without new primary legislation?

Yes. The Treasury may increase or decrease the standard VAT rate by up to 25% of the rate otherwise in force by making a statutory order. Since the standard rate is 20%, this permits adjustments of up to 5 percentage points, allowing a range between 15% and 25% without fresh primary legislation.

How long does a Treasury order adjusting the VAT rate last?

Any Treasury order adjusting the VAT rate automatically expires one year after it takes effect unless it is renewed by a further order. This time limitation ensures that temporary changes to the rate cannot continue indefinitely without active renewal by the Treasury through a continuing order.

How is the 25% adjustment limit calculated when successive VAT orders are made?

When the Treasury makes a new order to continue, vary or replace a previous one, the 25% limit is always measured against the original statutory rate of 20%, not any temporarily adjusted rate. This safeguard prevents incremental orders from moving the rate beyond the boundary set by Parliament.

Value Added Tax Act 1994 section 2

Rate of VAT

Section 2 establishes the standard rate of VAT and gives the Treasury power to temporarily adjust that rate.

The standard rate of VAT is 20%, charged on the supply of goods or services and on the importation of goods, based on the value determined under the Act.
The Treasury may increase or decrease the standard rate by up to 25% of that rate by order.
Any such order automatically expires after one year unless it is continued by a further order.
When a continuing, varying or replacement order is made, the permitted 25% adjustment is always calculated from the underlying statutory rate of 20%, not from any temporarily adjusted rate.

Access full legislation.And much more.

By becoming a member, your team gets full access to Tax World research tools and source-backed tax resources.

Become a member