There are many VAT reliefs and exemptions that apply in the financial services sector, which is one of the most complex areas of VAT.
As a result, although it is possible to generate VAT savings, it is also very important to manage VAT risk, including structuring contractual arrangements to minimise VAT exposures.
HMRC closely monitor and regularly challenge financial services businesses on VAT, particularly around grey areas, of which there are many.
There are invariably a number of conditions that need to be met for VAT exemption to apply and it is therefore advisable that financial services businesses have some form of process to demonstrate that the required conditions are met.
We can assist financial services clients to develop these processes and help them review their income streams and commercial arrangements to ensure the required conditions are being met. We can also identify opportunities to maximise the scope for VAT exemption, ensure that commercial arrangements are VAT efficient and help manage VAT risk generally.
Financial intermediaries make up a significant part of the financial services sector, from agents and brokers to corporate finance businesses, and the rules around the VAT exemption of intermediary services is notoriously complex. There have been many VAT cases on the VAT treatment of intermediary commissions and HMRC have historically taken an aggressive approach in defending these, although not always successfully.
There can also be hidden VAT costs to financial services businesses, even those that aren’t VAT registered, particularly if marketing/advertising services are bought in from outside the UK.
Financial services VAT exemptions can also apply to taxpayers whose core business is not financial services. Retail is a good example, with many retailers/online traders either providing or acting as an intermediary in the provision of credit or other finance products.
