Although ‘financial services’ covers a wide range of providers, there are specific VAT issues and opportunities that apply to particular financial services and we have years’ of experience advising financial services clients on VAT, especially minimising irrecoverable VAT.
Many financial service providers aren’t VAT registered, but this doesn’t mean they are outside the scope of VAT. There can also be hidden VAT costs for those that aren’t VAT registered, and we have experience of assisting such businesses to minimise their VAT risk.
One of the key areas in which VAT impacts on financial services is the VAT treatment of broker/intermediary services, as any VAT that applies is typically an irrecoverable cost. We can help businesses identify and implement opportunities to apply VAT exemption.
Our client ran a firm that specialised in finding investors for high-tech startups. They had a complex commission structure partly based on the potential future value of the businesses into which investment was placed.
Our client had received conflicting advice on the VAT treatment of its activities.
We reviewed the activities, its sources of income including the mechanism under which it was paid for its services. We reached a conclusion, based on sound analysis of the VAT legislation, HMRC guidance notes and relevant case law, that our client’s services were VAT exempt.
Our client was able to move forward with certainty on how VAT applied to its business.
Our client provided financial intermediary services to high-net-worth individuals
Our client treated his income as VAT exempt and therefore not VAT registered even though their annual turnover was over £500k.
HMRC had made enquiries into his business, having cross-referenced his turnover from other tax enquiries that had been made, including questioning the rationale for VAT exemption.
We conducted a review of our client’s services, assessing their value to ensure they did not qualify for VAT exemption, meaning they were taxable, we also had to ensure they did not exceed the VAT registration threshold.
We satisfied HMRC that there was no liability to register for VAT.
We have acted for a client who provides ‘leads’ to loan brokers
Revenue from supplying leads is typically a % of successful leads if VAT is due on the commissions. It’s the lead provider who usually gets stuck with the VAT cost (because the brokers cannot typically recover the VAT they pay on their costs, so usually agree on a flat %, no VAT.)
We reviewed our clients’ activities and referred to a number of key VAT Tribunal cases that laid out the conditions that need to be met for a financial intermediary to qualify for VAT exemption.
From here we advised our client that although on balance there was a strong argument that their services were VAT exempt, there were steps that they should take ( particularly concerning the lead evaluation process) to strengthen the argument for VAT exemption.
Not always. While many financial and insurance services are exempt, the VAT treatment depends on the specific nature of the services provided. It’s important to assess each service line carefully. We can help clarify what qualifies and where VAT may apply.
Generally, exempt services don’t count toward the VAT registration threshold. However, HMRC may still scrutinise your business if your turnover is high. We review your income sources to ensure you’re handling registration obligations correctly.
Irrecoverable VAT refers to VAT costs that a business cannot reclaim, common in exempt sectors like finance and insurance. With proper planning, we help reduce these costs by identifying areas where VAT recovery is possible or exemption can apply.
Intermediary services often fall into a grey area. If structured and evidenced correctly, they may be VAT exempt. We review your setup and guide you in meeting the exemption conditions to help avoid unnecessary VAT liabilities.
Yes. Some non-registered providers still face hidden VAT costs or compliance risks. HMRC can investigate if they believe the VAT exemption is incorrectly applied. We support you in demonstrating proper treatment or reassessing your position if needed.
We can help by conducting a detailed review of your services and your income, applying relevant legislation and case law. If you're under enquiry, we work with HMRC to clarify your position and resolve issues efficiently.
It depends on how the service is structured. If the lead generation qualifies as a financial intermediary activity under VAT law, it may be exempt. We can assess this for you and advise on how to strengthen the case for exemption if that is desirable.
