The EU is investigating the UK’s VAT treatment of commodity derivatives trades

The EU Commission has confirmed that it is commencing infraction proceedings against the UK in respect of trading in certain commodity derivatives.

At present transactions in relation to commodity derivatives including spot trades, futures and options benefit from a VAT zero rate under what is referred to as the Terminal Markets Order (TMO). John Forth, FS VAT Partner commented that 'if the Commission are ultimately successful then VAT would be due on commodity transactions creating both additional and unnecessary cashflow costs and increased administration for those organisations trading under the TMO'.

The UK Government have confirmed that they will consider the views of the Commission and respond in due course but in the meantime transactions will continue to benefit from zero rating under the TMO.

In view of the fact that the average duration for infraction proceedings against the UK is currently 3 years this will not be resolved before Brexit. Accordingly subject to the nature of any transitional arrangements agreed with the EU this challenge may ultimately prove to be an academic one.

- John Forth

For further information on our VAT and Indirect Tax services for Financial Services clients please contact John Forth or Justine McInnes

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