Reply To: Indirect tax( VAT) in banking industry (financial services)

Forum Categories VAT ADMINISTRATION ISSUES Indirect tax( VAT) in banking industry (financial services) Reply To: Indirect tax( VAT) in banking industry (financial services)

#55873

Generally, supplies of financial services are exempted under the provisions of Group 5 Schedule 9 VATA 1994. Exemption also extends to intermediary services supplied in relation to exempt financial transactions.

However administrative functions, accountancy functions, credit management and processing services are not exempt financial services but rather are standard-rated for VAT. Also standard-rated are services preparatory to transactions in money, securities for money, notes or orders for payment of money (e.g. data-preparation work for transferring funds between bank accounts).

The case of FDR Ltd established that a company which processed credit card transactions for clearing banks and retailers could be providing an exempt service, on the grounds that:

• it was providing a single, compound service rather than a range of different services which might have different liabilities;
• a major part of that service was effecting the transfer of the funds at the end of the day;
• it was therefore involved in financial transactions, and the whole of the service took its character from that, and was exempt within Group 5 Sch 9.

The nature of the company’s service needs to be examined carefully to find out if it is involved in financial transactions, or is merely carrying out administrative and accountancy functions.