Every EU member state pays contributions to finance the EU. In 1984 Margaret Thatcher negotiated a special rebate for the UK. It is calculated annually. The reduction is technically called the abatement, but is commonly known as the British Budget “rebate” or “refund”.
The main reason for the rebate was that a high proportion of the EU budget (at that time 80%) was spent on the Common Agricultural Policy (or CAP). As the UK had relatively few farms, it got a relatively small share of farm subsidies; thus a special rebate was justified.
Moreover, the UK was then the third poorest member of the Community but was on course to become the biggest net contributor to the EU budget. The rebate in any given year is equivalent to 66% of the UK's net contribution in the previous year.
Payments to the EU are largely funded by GNP contributions and VAT returns and are roughly proportionate to the size of each country's economy.
The poorer new member states also participate in the financing of the rebate.