Good VAT news for financial services providers

Draft legislation issued last week appears to be very good news for financial services (FS) providers who supply services to recipients located in the EU, and who currently suffer a significant VAT cost on such supplies – resulting from VAT recovery on the costs associated with these supplies being blocked. 

Prior to Brexit, all FS providers located in the EU are in the same position: EU FS providers cannot recover VAT on the costs associated with making supplies to a recipient located in the same or another Member State. 

However, as discussed in John Forth’s recent article following Brexit, this would result in a 'VAT inequity' in that that EU-based FS businesses would be able to recover VAT incurred on supplies to UK-based recipients,  while UK-based businesses were unable to recover VAT incurred on supplies to EU-based recipients.

The draft legislation removes this VAT inequity by allowing UK-based FS providers to recover VAT incurred on supplies to recipients in EU Member States.

The spirit in which this draft legislation is issued also appears to demonstrate that it will be passed whether we have a no-deal Brexit, or a Brexit on agreed terms; presumably the risk of providing FS providers with another incentive to relocate some or all of their business to EU Member States post-Brexit being the main driver behind it.

While the issue of associated anti-forestalling legislation may prevent FS providers entering into VAT planning arrangements whereby the tax point on the costs which they incur is postponed until after Brexit, this draft legislation appears to be good news all round for the high proportion of UK FS providers who make supplies to EU Member States. 

Contact John Forth and Justine McInnes for further details.