Official Statistics

Scottish VAT assignment 2021 - experimental statistics

Updated 28 September 2023

The latest release was published 09:30 28 September 2023. The next release will be published at a date to be confirmed.

1. About this release

This Experimental Statistics publication on Value Added Tax (VAT) Assignment (VA) for Scotland is produced by HM Revenue and Customs (HMRC) with support from the Scottish Government. These statistics present an estimate of the first ten percentage points (10p) of the standard rate of VAT raised in Scotland (as recommended by The Smith Commission) and the first 2.5 percentage points (2.5p) of reduced rated VAT raised in Scotland as an annual proportion of UK VAT receipts.

The VA share calculation is based on a detailed model jointly developed by the UK government and Scottish Government which considers how much VAT would be assigned to Scotland if it were a separate jurisdiction for VAT purposes (as recommended by the Smith Commission) considering expenditure in Scotland and the rest of the United Kingdom (UK). VA estimates for 2011 to 2020 were published on 29 September 2022.

This publication contains a first estimate for the Scottish VA share of UK VAT for 2021 and a revised back series to 2011. Scottish VA share estimates remain provisional to allow for revisions to the underlying data and methodology which are both subject to change.

This publication covers 2021, the second year of the COVID-19 pandemic. The restrictions to the economy arising from the response to the pandemic led to a large fall in the overall amount of UK VAT collected as well as the Scottish share in 2020, and some of the effects of the pandemic are still apparent in 2021.

2. Executive summary

In 2021, the Scottish VA share outturn as a percentage of UK VAT liabilities was 4.39%, up from 4.03% in 2020. For information on VAT liabilities and how this outturn is calculated, see Scottish VAT assignment 2021 - supplementary information.

Figure 1: Scottish VA share of UK VAT receipts (%), 2011 to 2021

Figure 1 shows the Scottish VA share for calendar years 2011 to 2021.

The Scottish VA share fluctuates between 4.03% and 4.57% during the period 2011 to 2021. The VA share was lowest in 2020 at 4.03% due to COVID-19 effects, in particular lower domestic tourism expenditure in Scotland from rest of the UK (rUK) residents. The VA share has recovered in 2021 to 4.39%; this increase has been driven mostly by recoveries in domestic tourism expenditure in Scotland, closely followed by growth in household expenditure.

Across the rest of the time series, fluctuations in VA share are mostly driven by changes in household expenditure, which is the largest expenditure sector of the model.

3. Model results and commentary

Table 1 shows the Scottish VA share figures for figure 1, VAT liabilities for the UK and estimated illustrative Scottish VA figures based on the VA share and VAT liabilities.

In 2021, VAT liabilities were £16,283 million higher than liabilities during 2020. This increase can be attributed to both inflation and recovery as COVID-19 restrictions eased.

The estimated Scottish VA share of UK VAT ranges from 4.24% to 4.57% from 2011 to 2021, with the exception of 2020 where VA share fell to 4.03% due to COVID-19 impacts. The cash value of this share is presented in table 1 as illustrative VA figures.

Table 1: Estimated Scottish VA share of UK VAT compared to UK VAT liabilities, 2011 to 2021

Calendar year	VA share (%)	VAT liabilities (£ million)	Illustrative VA share (£ million)
2011	4.57%	98,292	4,488
2012	4.56%	100,572	4,583
2013	4.56%	104,718	4,778
2014	4.41%	111,363	4,912
2015	4.37%	114,941	5,020
2016	4.24%	119,799	5,075
2017	4.55%	126,423	5,758
2018	4.44%	132,540	5,889
2019	4.34%	134,862	5,857
2020	4.03%	118,968	4,800
2021	4.39%	135,251	5,933

Figure 2: Breakdown of the year-on-year change in Scottish VA share of UK VA by Scottish VA model components 2012 to 2021

Figure 2 shows how the change in the VA share over time is driven by changes in each of the expenditure components:

• between 2013 to 2019 the VA share changes broadly in line with the year-on-year changes to the household sector (the largest sector covering 86% of activity) with the exception of 2015 where there is less than +0.01% growth

• from 2020, domestic tourism becomes a key driver in VA share changes, reducing by 0.29 percentage points in 2020, then increasing by 0.18 percentage points during 2021 with the easing of COVID-19 restrictions

• in addition, the household sector continues to be a key driver of the change in VA share in 2021, when VA share returned to pre-pandemic levels

Underlying data for figure 2 can be found in table 4 of the accompanying Excel data.

3.1 Growth in the illustrative £ million VA figures

Figure 3 presents the relationship between growth in the cash estimates for the VA share, growth in overall UK VAT liabilities, and changes in the VA share estimated by the model.

In most years growth in UK VAT liabilities is the most important driver. For the first time since 2018, both the VA share and VAT liabilities increased in 2021. This is the largest single year growth since the publication began, driven mainly by the growth in UK VAT liabilities. The significant growth in UK VAT liabilities was driven by recovery since COVID-19 impacts in 2020.

Overall, UK VAT liabilities in 2021 increased by 13.7% compared to 2020. The increase can be attributed to the economic effect of the COVID-19 pandemic on the previous year and the recovery evident in 2021.

Underlying data for figure 3 can be found in table 5 of the accompanying Excel data.

Figure 3: Percentage growth in the illustrative VA cash share

4. Revisions from previous estimates

The Scottish VA share has been revised in all years as underlying National Accounts aggregates are revised.

Due to some methodological revisions to certain elements of the 2021 publication, the VA share for years 2011 to 2020 differ from the previous release. Table 2 displays these upward changes which range from 0.22% (observed in 2016 and 2018) and 0.36% (observed in 2020).

These revisions include:

• domestic tourism: domestic tourism expenditure has been changed to zero for March 2020 to March 2021 to reflect the COVID-19 lockdown restrictions across the UK. This has increased the 2020 VA share by 0.47 percentage points. It has also affected the back series by between 0.22 percentage points in 2015 and 2018, and 0.29 percentage points in 2014

• partially exempt: a revision was made to the partially exempt calculations to correctly apply the VAT rate to the expenditure in this sector. This affects the full back series, impacting the estimate by between 0.01 percentage points in the 2010 year to 0.17 percentage points in the 2020 year

These changes also affect other outputs, such as Standard Rate Equivalent (SRE) expenditure, details of which can be found in Scottish VAT assignment 2021 - supplementary information under section 2.4 Revisions.

Table 2: Revisions to VA share (percentage point) and illustrative VA figures (£ million)

Calendar year	Revisions to VAT assignment share (percentage point change)	Revisions to illustrative VAT assignment figures (£ millions)
2011	0.32%	308
2012	0.34%	343
2013	0.31%	328
2014	0.31%	342
2015	0.24%	270
2016	0.22%	255
2017	0.23%	298
2018	0.22%	289
2019	0.29%	597
2020	0.36%	1,070

5. What components of the model are driving movements in the Scottish VA share over time?

Figure 4 shows how the change in the household sector of the VA model over time is driven by changes in the Living Costs and Food (LCF) Survey:

• between 2013 to 2019 the Scottish share of expenditure based on the LCF changes broadly in line with the year-on-year changes to the household sector (the largest sector covering 86% of activity, which the LCF feeds into)

• in 2020, the Scottish share of expenditure based on the LCF fell 0.31 percentage points driven mainly by relatively large falls in the Scottish domestic tourism sector

• in 2021, the Scottish share of the household sector rose by 0.35 percentage points and was driven by an increase in domestic tourism and household expenditure in Scotland, relative to rUK

Underlying data for figure 4 can be found in table 6 of the accompanying Excel data.

Figure 4: Scottish share of UK household expenditure: LCF Survey versus VA model

Living Cost and Food Survey and Standard Rate Equivalent expenditure

Given the importance of the household sector, figure 4 presents the Scottish share of total UK household expenditure per the LCF Survey compared to the Scottish SRE share of UK SRE household expenditure derived using the VA model.

The VA model focuses on categories of expenditure which are subject to VAT and translates these into SRE currency, while the LCF Survey data provides the raw data before any of these adjustments.

The LCF is one of many data sources the VA model used to calculate the Scottish SRE share of UK household expenditure.

Figure 4 shows that the Scottish SRE share of UK SRE household expenditure from the VA model has previously followed a similar trend as the Scottish share of total UK expenditure based on the LCF, notably the decrease in 2016 and increase in 2017.

The changes in the Scottish share of UK total expenditure depicted by the LCF indicate that the underlying LCF data is largely driving the changes in the Scottish household share in the VA model, which subsequently is driving the VA share for non-COVID-19 years (2011 to 2019).

In 2020 to 2021 there is a divergence between the household SRE expenditure and the LCF expenditure; the Scottish share of LCF expenditure fell in 2020 and 2021, whereas in the VA model it was unchanged in 2020 and then increased in 2021. This may reflect the ongoing impact on COVID-19 on household spending patterns, with household spending in general remaining lower in 2021 and the composition of household spending also changing. The Office for National Statistics (ONS) reported that weekly expenditure by households dropped by £106.40 from April 2020 to March 2021 due to COVID-19 restrictions, explaining this new trend.

The divergence will also reflect the fact that data sources other than the LCF Survey are used to estimate household expenditure in the VA model.

6. Breaking down expenditure components in the Scottish VA Model

In 2021, the composition of expenditure in Scotland is very similar to rUK. The household expenditure component accounts for the largest proportion of SRE expenditure in both Scotland and rUK; around 86% from 2011 to 2021. There was minimal variance between rUK and Scotland in all sectors, with the highest variation being in central government, at approximately 1.7% higher in Scotland than in rUK.

Figure 5 displays the breakdown in expenditure components of total SRE expenditure in Scotland over the time series, before adjustments, and demonstrates the following trends:

• the time series shows limited variability in the components of SRE expenditure in Scotland from 2011 to 2021

• the time series has altered compared to previous publications, largely due to a correction within the partial exempt calculation for the entire back series, however the trends remain the same. Other revisions affecting the SRE expenditure back series are domestic tourism (affecting 2020) and some small sectors with minimal impact to the model being removed

• the household sector has stayed relatively stable, between 85% and 87%

• the central government sector remains at 6% in 2021, as observed in 2020. This is an increase on 2011 to 2019 levels which ranged from 4% to 5%

• the exempt sector has decreased from a 4% share in 2020 to 3% in 2021

• the housing sector has remained between 4% and 5%

• the charities sectors has remained less than 1% from 2011 to 2021

Underlying data for figure 5 can be found in table 7 of the accompanying Excel data.

Figure 5: Breakdown of total SRE expenditure in Scotland by sector, 2011 to 2021

7. Household SRE expenditure

Table 3 demonstrates the following household expenditure patterns for Scotland and rUK:

• expenditure in Scotland and rUK show similar patterns for the different household expenditure categories

• the three categories showing the largest share of expenditure for both regions are transport, recreation and culture, and restaurants and hotels

• the two categories with the smallest share of expenditure for both regions are health and education

• the largest difference in expenditure patterns between regions is for tobacco, where expenditure takes up a noticeably larger proportion of total household expenditure for Scotland (5.46%) when compared to rUK (3.48%). This is in keeping with ONS statistics on tobacco consumption, suggesting that Scotland consumes a higher proportion of tobacco products relative to England

Table 3: Breakdown of household SRE expenditure in Scotland and in the rest of the UK, 2021

Sector	% of SRE expenditure in Scotland	% of SRE expenditure in the rest of UK	Percentage point difference
Food & Non-Alcoholic Beverages	4.12	3.67	0.46
Alcoholic Beverages	4.09	3.81	0.28
Tobacco	5.46	3.48	1.98
Clothing and Footwear	8.55	8.25	0.30
Housing, Water, Electricity, Gas, and other Fuel	5.17	5.29	-0.12
Household Goods and Services	10.44	10.48	-0.04
Health	1.35	1.73	-0.38
Transport	17.32	17.88	-0.57
Communication	3.85	4.06	-0.22
Recreation and Culture	14.84	16.49	-1.66
Education	0.01	0.07	-0.06
Restaurants and Hotels	16.39	16.58	-0.20
Miscellaneous Goods and Services	8.41	8.20	0.21

8. Caveats

1. It is not possible to directly measure VAT raised in Scotland as the information collected from businesses through VAT returns does not specify the UK region of consumption. The share has been estimated using the Scottish VA model, jointly developed by officials from UK government and Scottish Government.

2. The information in this publication is calculated on a calendar year basis and presents VAT data according to when the VAT receipts arose (referred to as VAT liabilities in this publication) rather than when VAT would have been paid. VAT receipts are reported in financial year. As there is normally a lag of around three months between VAT liability and VAT payment, the VAT liabilities used in this publication presented on a calendar year basis are assumed to be the same as VAT receipts by financial year.

3. In 2020 during the COVID-19 pandemic, a VAT deferral scheme was introduced which allowed VAT-registered traders to defer VAT payments from 20 March 2020 to 30 June 2020 until 31 March 2021. A further scheme was introduced which allowed customers to repay VAT due from 20 March 2020 to 30 June 2020 in instalments up until March 2022. The model previously did not account for this lag in VAT payments. For this publication, a manual adjustment has been made to UK VAT liabilities to account for the lag in VAT payments arising from the deferral scheme. More information can be found in the Scottish VAT assignment - supplementary information release under ‘revisions’.

4. The data sources used in the VA model include a variety of survey data affected by COVID-19 with the introduction of stay-at-home measures in March 2020 affecting data collection and other elements. For survey sources where data is available, expenditure may also reflect behavioural changes linked to COVID-19. For more information on the data sources affected, see ‘methodology’ in the ‘Background and methodology’ report.

9. Contacts and feedback

Produced by the Scottish VAT assignment team, as part of the ‘Devolved Taxes’ collection.

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