Boost for UK financial services exports
On 9 November, the Chancellor, Rishi Sunak, delivered a statement to the House of Commons outlining the government’s plans for the financial services sector, once the Brexit transitional period ends on 31 December 2020. Alongside news of the UK’s approach to regulation and the use of technology to deliver financial services, were details of intended changes to be made to VAT, specifically, extending the ability for financial services businesses to recover the VAT they incur on costs. The Chancellor said, “to make sure UK financial services exports to the EU remain competitive, we will treat those exports the same as we do for other countries. This means UK firms will be able to reclaim input VAT on financial services exports to the EU.”
Currently, where financial services are supplied to a customer located in the EU, the input tax incurred on costs is not recoverable as it would be if the customer were located outside the EU. However, the intention appears to be to treat supplies of financial services to customers located both in the EU and outside the EU the same, with input tax being recoverable. Not only will this allow some firms to improve their VAT recovery, but also it should now present an opportunity for others to register for VAT in order to reclaim the VAT incurred on costs that were previously irrecoverable.
As well as incurring VAT on costs incurred in the UK, services bought from outside the UK are very often subject to the reverse charge accounting. For firms with exempt supplies this creates irrecoverable VAT where the costs relate to supplies made to EU customers. However, this change should mean that reverse charge VAT would also be recoverable where the customers are located in the EU and non-EU countries. Input tax could not be recovered from supplies made to UK customers.
Financial services businesses should be preparing for the welcome change, such as reviewing processes and implementing systems and VAT recovery methods, to ensure that they can take full advantage of the new rules. Please contact us if you would like to discuss these changes in more detail.
Click here to read a transcript of the Chancellor’s full speech, delivered to the House on 9 November. Further information, including regular briefings and our most up-to-date Brexit advice can be found on our Brexit hub.