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You will find this notice useful in determining whether:. The notice has been updated to reflect changes in paragraph 4. Financial services have relevance to every business and are not confined to banks, building societies, other financial institutions or financial intermediaries. If you are a business and you supply or receive financial services this notice will be relevant to you.
You can access details of any changes to this notice since June either on our website or by phoning our Helpline on Telephone: Relevant extracts from the VAT Act can be found in section In general, financial services are exempt from VAT. However, the following list contains examples of services that, although connected to financial services, are not themselves exempt:. Where these services merely form one element of the service being provided, it will be necessary to look at the whole service being provided in order to determine the correct supply position and the liability of that supply or those supplies.
In order to establish the correct liability of such packaged services you may need to apply certain tests to ascertain the overall liability of your supply. It does not become exempt simply because your customer uses your service in making its own exempt supplies.
You must determine the exact nature of your supply. For it to be exempt, it must, when viewed broadly, form a distinct whole, fulfilling the essential functions of a supply described within the finance exemption set out in the VAT Act, Schedule 9, Group 5 see paragraph If you are acting as an intermediary you should read section 9 of this notice.
If you are providing outsourced services to a loan provider you should read paragraph 4. You are entitled to deduct the input tax incurred that you use or intend to use in making taxable supplies. You cannot normally deduct input tax where this relates to exempt supplies although special rules apply to supplies of financial services made to persons located outside the EU - see paragraphs 1.
If your input tax relates to both taxable and exempt supplies, you can normally deduct only the amount of input tax that relates to your taxable supplies. You can find further information in Notice Partial exemption. If you purchase capital items for business use you may need to make adjustments of input tax in subsequent years. Capital items are assets that are capable of being used in your business over a period of years.
The items concerned for which adjustments may be necessary include computer equipment, land, buildings and refurbishments. If you make financial services to or receive them from people who belong outside the UK you should read Notice and A Place of Supply of Services. It explains when you can treat services that are supplied to a person belonging outside the UK as outside the scope of VAT.
It also explains how you should account for VAT on the receipt of certain financial services from outside the UK reverse charge. You should note that not all the finance related services mentioned in Notice Place of Supply of Services are exempt from VAT when supplied within the UK see paragraph 1. References to money in this notice include currency, bank notes and coins, in sterling or any other currency used as legal tender in a financial transaction, but not, with effect from 1 July , platinum nobles.
Dealing with money includes financial transactions of a kind routinely, but not necessarily, carried out by banks, building societies, bureaux de change and similar institutions. To be dealing with money you must be carrying out a financial transaction.
Financial transactions that involve dealing with money include:. This is because the services being applied to the money are the same as those that could be applied to any type of goods that can be counted, packed, delivered, collected and reconciled. Services that include an element of making payments or transfers between bank accounts are exempt.
Where a supply has a mixture of taxable and exempt elements, its overall character will determine the liability. The first issue, by the bank of issue, of Bank of England, Scottish and Northern Irish banknotes is zero-rated.
This provision overrides the exemption allowed for dealings with legal tender banknotes. Preparatory services that are carried out separately, before an exempt financial transaction concerning money, are taxable. An example is the preparation and delivery of data such as a wages roll, which is then put into effect by someone else. Preparatory services carried out by an intermediary as part of their overall exempt supply are exempt see paragraph 9.
If you accept over-the-counter payments for household bills and charge for the service, your supply is exempt. Sales in some gold coins are exempt as investment gold. Foreign exchange transactions are normally exempt supplies. If you act as principal, then the consideration is the net result of your transactions over a given period of time plus any fees or commission charged. However circumstances may arise where you enter into a foreign exchange contract that does not provide for a consideration in any form.
In this instance there may not be a supply for VAT purposes. If you act as an intermediary in a foreign exchange transaction you should refer to section 9. A service supplied by a clearing-house for settling indebtedness between members is an exempt supply. Services provided in connection with the routine operation of an ATM, including filling with cash, maintenance and repair, are taxable supplies.
ATM providers sometimes make charges that are described as convenience fees, interchange fees or reciprocity fees. Where the charge is for:. The granting of a right to permanently attach an ATM to the ground, or for its incorporation into the fabric of a building, is an exempt supply unless the grantor has elected to waive exemption.
Further guidance can be found at section 2 of Notice Land and property. Many of the charges made by banks, building societies or similar organisations in connection with the operation of a current, deposit or savings account will be exempt. Exceptions include charges made for:. If you are a supplier making such a charge to your customer, the charge will be outside the scope of VAT.
Electronic banking services including account management are supplied by banks to customers both businesses and individuals , as an addition or alternative to conventional banking services. To determine the liability of an electronic banking service it should first be established whether it is provided as a supply in its own right or as part of a package of services see paragraph 1.
In principle, services which would have been treated as exempt under the VAT Act, Schedule 9, Group 5 if they had been provided by the bank by conventional means should be treated as exempt when provided within the framework of electronic banking services; other finance related services which are not covered by Group 5 should be treated as liable to VAT at the standard rate.
If you charge for the deduction from the pay of an employee in compliance with an attachment of earnings order, this is seen as reimbursement for expenses incurred in carrying out a statutory duty and is outside the scope of VAT. A security for money can be described as a document under seal or under hand for consideration containing a covenant, promise or undertaking to pay a sum of money. Securities for money are not restricted to a specific type of document: If you deal with securities for money as an intermediary or broker you should read section 9.
Face value vouchers that give a right to goods or services are not seen as securities for money. For example, where the voucher is presented to a retailer as payment for goods or services it is not a security for money, but when the retailer presents the voucher to a third party to be exchanged for money, it becomes a security for money at that point if the voucher had been issued to the redeemer under a credit arrangement or initial grant of credit.
The VAT liability of these types of products depends on the precise nature of the arrangements in place. In order to qualify for exemption, they must be financial instruments that are securities for money as defined in paragraph 3. This means that an exempt guarantee or surety will involve a third party providing a guarantee or security for payments to be made under a contract. The finance exemption will not apply to the supply of warranties or contracts for the supply, repair or maintenance of goods even though these are sometimes referred to as guarantees.
The charge you make for a loan, advance or credit facility is usually described as interest. The value of the exempt supply in the grant of credit or loan is the gross interest or other sum received, but not the repayment of capital loaned.
This type of credit is usually advanced in connection with the supply of goods, and may be under a hire purchase, conditional sale or credit sale agreement see paragraph 4. The provision of instalment credit in these situations is exempt where a separate charge is made for the facility of instalment credit and disclosed to your customer.
If this condition is satisfied, the supply of credit is exempt and the supply of goods taxable, the value being the cash price stated in the agreement before any deposit or any part exchange value is deducted. If you do not satisfy this condition, the full amount paid by the customer is consideration for the supply of goods. The full amount of VAT on the goods is accounted for at the time of supply.
Usually this is when the goods are delivered, but it may be preceded by any part payment, or the issue of an invoice. Conditional sale - means the sale of goods where the price is payable by instalments. The goods remain the property of the seller until the full price is paid or the customer meets another agreed condition. Hire purchase - occurs under an agreement for the hire of goods for periodic payments, where the hirer has the option to purchase. Credit sale - means the sale of goods which immediately become the property of the customer, but the price is payable in instalments.
If you are a supplier of goods and are financing the credit yourself, your supply of credit will be exempt if the charge is disclosed separately to your customer. Your supply of goods must be under a conditional sale, hire purchase, or credit sale agreement see paragraph 4. The consideration for the taxable supply of the goods is the price stated in the agreement. If a third party finances your supply of instalment credit, for example hire purchase or conditional sale, your supply of goods is to the finance company, which takes title to the goods, and not to your customer who is allowed to use the goods.
Thus your supply is one of goods and not one of financial services. The third party supplies the financial services and the goods, to the user or customer. If by arrangement between yourself and your customer you supply goods or services and your customer pays for these goods or services over a set period without paying interest, there is no supply of credit for VAT purposes see paragraph 4. When you supply goods to customers on interest free credit terms, you may receive an amount from a finance company, which is less than the amount due from your customer for the goods.
This does not affect the value of the supply to the customer and you must still account for VAT on the full sales price invoiced to your customer for the goods. The difference between the full selling price, and the amount you receive is consideration for an exempt supply by the finance house to you, the supplier. Exemption normally applies to any supplies connected to credit charges unless the charge relates, wholly or partially, to the supply of goods.
Fees, such as for administration, documentation, or transfer of title, fall within the above exemption when they are ancillary to the principal supply of credit. You may receive commission for introducing your customers to finance houses that provide them with credit.