Why does the UK get a rebate to EU contributions?

The UK as a member state of the EU must contribute to the funding of the EU (See How much does the UK contribute to the EU?.

However, the UK receives a rebate on its contributions. This is a sum of money deducted from the contribution value prior to payment. Therefore the rebate funds do not leave the UK and are never paid.

The UK argued for the rebate, which was introduced in 1984, because at the time it was the third poorest member of the Community but on course to become the biggest net contributor to the EU budget.

The main reason for this was that the UK had relatively few farms, so it got a small share of farm subsidies, which at the time made up 70% of budget expenditure.

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In 1984, the formula for determining how much a country paid into the Community budget was also unfavourable to the UK due to its emphasis on VAT-related income. The UK was in effect penalised for raising more revenue from VAT than most other member states and importing more goods from countries outside the Community.

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The rebate is equivalent to 66% of the UK’s net contribution in the previous year and is paid for by the other 26 member states as a roughly equal proportion of their economy.

Source: www.bbc.co.uk/news