Mastering VAT in Financial Services

The General Rationale of VAT

VAT is a very different tax to most direct taxes such as income tax and corporation tax and operates on entirely different principles.  This section will look at the structure of VAT and give you the knowledge of how VAT works in order 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 Financial Services

This section will cover the main business sectors where the VAT exemption applies and 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, 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 excluded from the exemption
• Single vs multiple supplies - one supply or many, one or more VAT rates?

Place of Supply of Services

As well as 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 own 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 will provide 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 arguable 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

Redcliffe’s VAT & Financial Services courses are delivered by a former VAT partner in a mid-tier accountancy firm.  He has a 41 year career in Indirect Tax including 10 years’ experience in HM Revenue & Customs followed by over 30 years in the accountancy sector advising clients on VAT issues, most recently as VAT Partner at Blick Rothenberg.  He qualified as a Chartered Tax Adviser in 1995 and has previously Chaired the Indirect Tax Sub-Committee of the Chartered Institute of Taxation and served as a Council member of the VAT Practitioners Group.

Regular areas of VAT work cover financial services, land and property, partial exemption, international supply chains, inward investment into the UK and resolving disputes with HMRC.

This VAT & Financial Services masterclass is for participants to understand the VAT issues that arise when providing or receiving the full range of financial services.

The course will include an examination of contractual issues that frequently 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 pinpoint where problems might arise.

Where appropriate, the course will look at the 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, one aim of the course is to enable an insight into the consequences for other parties to the transaction and pre-empt commercial disagreements before they arise.

This course on VAT & Financial Services looks at the VAT rules in detail, the scope of the VAT exemption and when it does and does not apply, the many different commercial transactions and the evolving interpretation of VAT law in the Courts, illustrated by a variety of transaction examples and scenarios.  Pitfalls & bear traps are rife with the smallest details potentially causing problems for either the supplier or customer or both.

With its financial services focus across several different industry sectors, this course does not lend itself to a single comprehensive case study.  Rather, each section will be illustrated with practical scenarios to put the often complex VAT positions in a real world context. 

The advice given by advisers is likely to be different depending on whether the adviser is acting for the supplier or customer and the optimum solution is unlikely to be the same for both parties. This course looks at the VAT treatments from the view of all parties to a transaction overlaying this by reference to case-law where appropriate and commercial documentation including contracts, invoices and record-keeping.

This course is an essential part of developing knowledge for:

• Tax and legal professionals advising clients on the VAT treatment of their transactions, particularly for advisers specialising in direct taxes or contract law where VAT may not be their focus and for whom an awareness of VAT issues will add to their breadth of knowledge and identify conflicts between the various disciplines.
• Management or ‘in-house’ staff in the financial services industry for whom an awareness of VAT issues will inform the plans for growth or new venture not least the early negotiations with suppliers, customers and counterparties.
• Tax compliance staff looking to widen their horizons and have more informed discussions with clients.

Redcliffes Training’s VAT & Financial Services course looks at the VAT 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, the course also examines the various VAT compliance and reporting obligations that arise continuously from day one - a markedly different reporting position to direct taxes.

The course will include real world examples throughout and some unexpected and counter-intuitive VAT consequences.