VAT reform could raise £80 billion a year, claims ICAEW

24 Nov 2025

The Chancellor could raise billions by reforming UK's 'outdated and overly complex' VAT system, claims the Institute of Chartered Accountants in England and Wales (ICAEW).

According to the Institute, adopting a lower, single rate of VAT across a broader base would make it fairer and easier to do business, while generating billions more in tax revenue.

The ICAEW argues that the current system of multiple rates and exemptions created complexity without strong evidence of delivering fairness or targeted support.

Currently, VAT represents the UK's second largest source of tax revenue, generating £171 billion in 2024/25 – approximately one-fifth of total tax receipts. 

The ICAEW calculated that if the UK broadens the application of the standard 20% rate of VAT in line with the Organisation for Economic Co-operation and Development (OECD) average, it could generate an additional £30 billion a year in revenue. 

Furthermore, adopting a regime more like that of New Zealand, which covers almost all goods and services, in theory could generate an additional £80 billion a year at a lower standard rate of 15%.

Alan Vallance, ICAEW Chief Executive, said: 'Multiple rates, numerous exemptions and the registration threshold cliff-edge discourage growth and make doing business too difficult. 

'The build-up to the Budget has been dominated by speculation over tax rises, including VAT. But the Chancellor should use this opportunity to bring about meaningful and comprehensive reform to broaden the base and lower the rate of VAT.'