Exemption from VAT for intermediary financial services
Exemption from VAT for intermediary financial services

The following Tax guidance note provides comprehensive and up to date legal information covering:

  • Exemption from VAT for intermediary financial services
  • Why is the exemption for financial services important?
  • The financial services exemption from VAT
  • The intermediary exemption for financial services
  • What are financial services?
  • What are 'intermediary services'?
  • What is acting in an intermediary capacity?
  • EU interpretation of the intermediary services exemption
  • Exclusions from the intermediary services exemption

Why is the exemption for financial services important?

VAT is a key concern for businesses in the financial sector as the supply of certain types of financial services to customers belonging in the UK are exempt from UK VAT. This is important because:

  1. businesses will not charge VAT on services falling within the exemption, and

  2. such businesses will not be able to recover input VAT on supplies they receive in the course of making an onward exempt supply

The financial services exemption from VAT

The UK VAT exemption for financial services is based on the relevant provisions of Directive 2006/112/EC (the VAT Directive). These have been enacted into UK law by group 5 of Schedule 9, Part II to the Value Added Tax Act 1994 (VATA 1994), which sets out a number of items falling within the exemption.

This Practice Note focuses on the exemptions for services falling within the category of ‘intermediary services’ (VATA 1994, Sch 9, Pt II, group 5, item 5) and the basic requirements of this exemption. For further details on the practical application of this exemption see: Practical application of the exemption from VAT for intermediary financial services.

The intermediary exemption for financial services

It is common for supplies of financial services to involve other businesses acting as intermediaries between the parties seeking