Exemption ― finance ― financial derivatives

Produced by Tolley

The following Value Added Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Exemption ― finance ― financial derivatives
  • Futures contracts
  • Is the contract a financial derivative?
  • Cash settled contracts
  • VAT treatment
  • Non-cash settled contracts
  • VAT treatment
  • Exchange trading
  • Fees charged by members
  • VAT treatment
  • More...

Exemption ― finance ― financial derivatives

IP COMPLETION DAY: 11pm (GMT) on 31 December 2020 marked the end of the Brexit transition / implementation period entered into following the UK’s withdrawal from the EU. At this point in time, key transitional arrangements came to an end and significant changes began to take effect across the UK’s VAT and customs regime. This document contains guidance on subjects potentially impacted by these changes. Before continuing your research, see the Brexit — overview guidance note.

Derivatives are financial instruments whose value is based on the value of the underlying commodity, financial instrument or currency. In order to determine the correct VAT liability of a derivative, the business or its adviser will need to ascertain the nature of the underlying supply. This guidance note provides information on the VAT treatment of the derivative and not the actual underlying product. If the business is acting as an agent or intermediary involved in these types of transactions, see the Exemption ― finance ― intermediaries guidance note for more information.

If the business is dealing with commodities traded on qualifying terminal markets, see De Voil Indirect Tax Service V4.208.

Futures contracts

A futures contract is an agreement to buy or sell a fixed amount of a particular commodity, currency or security on a specified date in the future agreed by the parties on the date the agreement was signed. Financial futures are those traded on financial services such as currencies, interest rates and securities rather than an underlying raw material such as rubber or cocoa, and are exempt from VAT. There are various types of future contracts and these are explained below.

Is the contract a financial derivative?

In order to determine the correct VAT treatment, the business or its adviser needs to have answers to the following questions:

  1. what is the underlying transaction ― is the trading derived from a financial instrument, a commodity or something else? A contract will only be a financial derivative

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