Commentary

V6.125 Liability of supplies in the banking and financial sectors

Part V6 Business by business

V6.125 Liability of supplies in the banking and financial sectors

Banking, finance and securities

V6.125 Liability of supplies in the banking and financial sectors

Introduction to the banking and financial services sectors

VAT can represent a considerable burden to businesses in the financial sector, primarily as a result of:

  1.  

    •     the need to establish the liability of supplies made

  2.  

    •     the requirement to establish the extent to which input VAT can be recovered

The weight of the burden will vary from business to business depending upon the profile of activities and the ability of the accounting or trading systems to provide the necessary information.

This paragraph considers the liability of supplies in the banking and financial sectors whilst V6.126 examines issues concerning VAT recovery and other practical points for the sectors.

Legal landscape affecting the liability of supplies in the financial services sector

Under Directive 2006/112/EC, art 135 and VATA 1994, Sch 9, Group 5, many supplies made in the UK relating to the financial sector are exempted from VAT. For an overview of the financial services exempted under EU and UK legislation, see V4.136.

It is important to note that the VAT treatment of financial transactions is a contentious area of VAT legislation and it has been the subject of many court cases, especially in respect of services associated with financial transactions (as opposed to the financial transactions themselves) as these are usually not covered by the exemption.

Whilst many supplies made by businesses operating in the sectors will be covered by exemption, many will not. Some supplies will not be relieved

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