The single commemorates the centenary of the unofficial ‘Christmas Truce’ in December 1914 when Allied and German soldiers laid down weapons to play football in no man’s land. Proceeds will go to the British Red Cross and the Shorncliffe Trust, a charity campaigning to build a national education centre and heritage park on the site of a major First World War military training camp near the English Channel port of Folkestone. 

The VAT waiver will be funded by fines levied on banks for abusing the Libor system, which the government has earmarked for military good causes. The VAT equivalent donation for this single will be transferred to the Ministry of Defence to be donated directly to these charities.

Chancellor George Osborne, said:  ‘I want as much money as possible that is made from this single to go towards supporting our brave armed forces – that is why I am giving back the tax paid on sales.

‘It’s only right that we use the centenary of the Christmas Truce of 1914 to commemorate our soldiers who fought for this country in the First World War, and to support our brave forces who are still fighting to defend Britain.’

The move is described by the government as the latest step in its First World War centenary commemorations after it also waived VAT on sales of the ceramic poppies displayed at the Tower of London.

'All Together Now,' originally written in 1990 by The Farm vocalist Peter Hooton as a tribute to the soldiers who took part in the Christmas truce, was re-recorded by 'The Peace Collective' and released on 15 December. 

The line-up includes Mick Jones of The Clash, Leo Sayer, Suzi Quatro, Shara Nelson from Massive Attack, and the Proclaimers.

Bank fines are also being used to fund a UK memorial tour of the main poppy installations from the Tower which will run until the centenary of the Armistice in 2018.

VAT will also not be raised on this year’s Band Aid Ebola single.