Mastering VAT in Financial Services

The General Rationale of VAT

Value Added Tax is different from most direct taxes, including income and corporation tax, operating on entirely different principles.  This section explores the structure of VAT and provides you with the knowledge of how VAT works, enabling you to analyse any situation.

• Structure of VAT law and general principles

• Basic rule ‘unless’ an alternative treatment applies; the Courts’ view on interpreting exemptions and exceptions from exemption

• Obligations vs entitlements: the very different legal and procedural aspects

• HMRC’s powers to challenge a VAT treatment - output tax and input tax issues

The VAT Exemption for F inancial Services

This section covers the main business sectors where the financial services VAT exemption applies. We identify problem areas where the VAT position may not be clear or is often misunderstood.

• The origin and scope of the exemption, legislation and affected industry sectors

• Regulatory issues vs VAT treatment

• Banking, lending, credit, money, foreign exchange, and payment processing services

• Stocks, shares, broking

• IFAs

• Investment management services, special investment funds, model portfolios, wrappers, etc

• Insurance services

• Financial intermediaries

• Derivatives

• Outsourcing

• Financial services which are excluded from the exemption

• Single vs multiple supplies - one supply or many, one or more VAT rates?

Place of Supply of Services

Besides understanding the crucial Place of Supply rules, this section looks at the impact of specific legislation providing a valuable benefit in this sector, how to determine the Place of Supply and the overlap with VAT registration rules, partial exemption and outsourcing.

• B2B & B2C basic rules and special conditions

• Reverse charges & specific impact in the financial services sector

VAT Registration Issues

VAT registration can be a complex issue. Compulsory or voluntary, large business or small, it is impacted by the business’s activities, outsourcing policies, international scope and the likely partial exemption position. This section will give you the tools to understand your own or your clients’ VAT registration obligations or opportunities.

• Types of entity - company, LLP, LP, partnership, trust

• The concept of ‘Establishment’ and different VAT rules for non-resident businesses

• When must you or can you register for VAT - compulsory & voluntary registrations

• When you may want to register for VAT earlier than the law requires

Partial Exemption & The Capital Goods Scheme

Partial exemption is a major issue for financial services businesses. Simple in concept yet hugely complex in application, this section provides an understanding of what partial exemption is, how it works, and its operation in practice, including some specific measures for the financial services sector.

• Basic principles of partial exemption

• Standard & Special Methods

• Specific issues for financial services businesses

• The effect of the Capital Goods Scheme (‘CGS’), advantages and disadvantages

VAT Groups

Forming a VAT group can have benefits for the businesses involved, but there are downsides, not least the different treatment of VAT groups in different countries. This section looks at how VAT groups work, the administration to form, change or cancel a VAT group and the pros and cons of VAT grouping.

• Law governing VAT grouping

• Pros & cons, input tax effects, partial exemption

• Branches and subsidiaries

• Treatment in different countries

Financial Services in Business

A brief look at some financial services in the real world.

• Share sales - purpose, ‘look-through’ and input tax issues

• Lending reports

• ‘Incidental’ activities

• Corporate treasury departments

• Property agents - managing agents, asset sales vs share sales

HMRC’s Position

There are many uncertain and debatable areas where the exemption from VAT may or may not apply. This section will help you understand HMRC’s position and the various ways the VAT treatment of a transaction can be challenged.

• Challenges to the supply

• Challenges to the Place of Supply

• Challenges to input VAT recovery and the partial exemption method used

• Implications for other parties

Training Objectives

• VAT and Financial Services training will help you understand Value Added Tax issues that arise when providing or receiving the full range of financial services

• The course will include an examination of contractual issues that often affect the VAT position and where the reality of the situation, or ‘substance over form’, can lead to a markedly different (and often adverse) VAT position

• The aim is to enable participants to identify not only the correct VAT treatment of the transaction being undertaken, but also pinpoint where problems might arise

• Where appropriate, the course will assess VAT treatments from the positions of suppliers, customers, and intermediaries to a transaction. As well as agents and other affected parties

• Although one’s own VAT treatment is always the prime concern, this masterclass aims to provide insight into the consequences for other parties to the transaction and pre-empt commercial disagreements before they arise

Training Course Summary

Redcliffes Training’s Financial Services VAT course looks at the Value Added Tax treatment of the range of financial services for both individual and business transactions. It looks at the VAT position of example transactions from the position of all parties and examines related issues such as contractual terms, HMRC challenges, and the ever-evolving caselaw in this area.

Where relevant, we also examine the various VAT compliance and reporting obligations that arise from day one; a different reporting position to direct taxes.

The course will include real-world examples throughout and some unexpected and counterintuitive VAT on financial services consequences.