<Ul> <Li> </Li> <Li> </Li> <Li> </Li> </Ul> <P> Value - added tax or value added tax (VAT) is a consumption tax levied in the United Kingdom by the national government . It was introduced in 1973 and is the third - largest source of government revenue, after income tax and National Insurance . It is administered and collected by HM Revenue and Customs, primarily through the Value Added Tax Act 1994 . </P> <P> VAT is levied on most goods and services provided by registered businesses in the UK and some goods and services imported from outside the European Union . There are complex regulations for goods and services imported from within the EU . The default VAT rate is the standard rate, 20% since 4 January 2011 . Some goods and services are subject to VAT at a reduced rate of 5% (such as domestic fuel) or 0% (such as most food and children's clothing). Others are exempt from VAT or outside the system altogether . </P> <P> Under EU law, the standard rate of VAT in any EU state cannot be lower than 15% . Each state may have up to two reduced rates of at least 5% for a restricted list of goods and services . The European Council must approve any temporary reduction of VAT in the public interest . </P>

When did the vat rate change from 17.5 to 20