Explainers

Value Added Tax

Value Added Tax (VAT) is an indirect tax levied on the purchase of many goods and services. It is reflected in the price paid when items are bought. VAT can be charged at either 20 per cent (standard rate), 5 per cent (reduced rate), or zero per cent (zero-rated).

The Scotland Act 2016 states that receipts from the first 10p of the standard rate of VAT and the first 2.5p of the reduced rate of VAT in Scotland will be assigned to the Scottish Government’s budget.

VAT being assigned rather than devolved means the Scottish Government will not have any direct policy control over VAT. VAT will continue to be collected by HMRC at a UK level, and the amount of tax assigned to Scotland will be estimated using a model developed by HMRC, HM Treasury, and the Scottish Government.

The SFC produces an illustrative forecast of the VAT assigned to Scotland from the last available outturn year (from the assignment outturn model) up to the present year, and for five years into the future.