Increased VAT recovery for financial services exports in no deal Brexit
In the event of a no deal Brexit, the government has said it has planned changes to the UK VAT legislation to allow companies to reclaim VAT on supplies of certain financial services made to the EU
4 Mar 2019
This will bring the VAT treatment of such supplies to EU customers into line with the treatment that applies to supplies made to customers in the rest of the world. It will also ensure that UK companies compete for business in the EU on an even footing with companies in other non-EU countries.
The necessary legislation has been laid before Parliament but will only be enacted if the UK withdraws from the EU without a deal. If a deal is agreed, the legislation will not be enacted, and the current VAT treatment will continue throughout the implementation period set out in the withdrawal agreement.
Maryse Heijnen, a VAT expert at law firm Pinsent Masons, said: ‘These changes will increase the level of VAT recovery available for financial institutions in the UK making supplies to EU clients, as currently those supplies do not give a right to recover VAT.’
VAT is not generally charged on supplies of financial services but, in turn, businesses cannot reclaim any VAT they pay on the costs of making those VAT exempt supplies. Under current rules, which are designed to maintain international competitiveness, businesses supplying customers outside the EU with exempt financial services may reclaim any VAT they pay on the costs of making those supplies, even though those services would be exempt.
The regulations also provide that partial exemption special methods agreed before the UK exits the EU will be interpreted in accordance with the VAT treatment that will apply after the UK exits the EU and so businesses will not need to apply to HMRC for approval of a new method after Brexit.
Report by Pat Sweet