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UK VAT explained including when businesses are required to register for VAT, HMRC rules and how VAT is applied to different types of goods and services and when VAT can be recovered. VAT (Value Added Tax) is a tax on consumption and is added to the sale of goods and services supplied by VAT Registered businesses. Not all products and services sold attract VAT and there are a number of VAT rates or categories as follows: Standard Rated 20% (taxable) Reduced Rate 5% (taxable) Zero Rated (taxable) Exempt Outside The Scope Depending on the goods being sold or services being provided, one of the categories above will be applied to the sale. Standard Rated Goods and Services Standard Rated goods and services are goods sold or supplied by VAT registered businesses and include 20% VAT. Therefore invoices to customers will include 20 % VAT. Standard Rated services fall into the taxable services bucket and where businesses make taxable sales and exceed or are likely to exceed £90,000 , they are required by law to Register for VAT. Examples of Standard Rated goods and services include: Fuel Professional Services such as Legal and Accountancy Computers and Mobile phones Hotel Accommodation No Domestic Energy Alcohol Restaurant food and hot takeaways Goods and Services with Reduced Rate VAT of 5% Reduced rate VAT of 5% is mainly applied within the domestic fuel and construction industry. Examples of Reduced Rate VAT at 5% include: Domestic / residential energy bills (Gas & Electric) Gas fired boiler installation Radiator Connection or re-connection to the gas mains Renovating a dwelling that has been empty for at least 2 years Zero Rated VAT Goods and services supplied as Zero Rated VAT are taxable supplies but without VAT applied. Therefore invoices generated and sent to customers for zero rated supplies will not include VAT. Examples of Zero Rated goods and services include: Children's clothing Books Sewerage services supplied to domestic or industrial customers Water supplied to domestic households Insulation Take away - cold food Note: where businesses make sales of goods and services to non UK business customers, these can also be treated as Zero Rated in some instances as they are deemed outside the scope of UK VAT but are classed as taxable services which carry the right to deduct Input VAT. (Please see place of supply button) Exempt Goods and Services Exempt supplies of Goods and Services unlike standard rated and zero rated are not taxable supplies. Exempt supplies are listed in the VAT Act 1994 Sch 9 and include the following: Postal Services Insurance Land and Property Rental Education Financial Services VAT Registration Businesses in the UK (including Isle of Man) are required to register for VAT If the value of their Taxable Turnover (standard rate, reduced rate and or zero rated supplies) in the preceding 12 months or less goes over the registration threshold of £90,000 If the value of their taxable turnover (standard rate, reduced rate and or zero rated supplies) is likely to exceed £90,000 in the next 30 days if the business is based outside the UK and supplies goods or services in the UK or are expected to in the next 30 days. (Threshold does not apply here) If a businesses is being acquired by a VAT registered business as a going concern If you make distant sales into Northern Ireland and exceed the annual threshold. Note: Businesses include Sole Traders, Partnerships, Limited Companies, Clubs, Associations. What is Taxable Turnover Standard Rated Sales of goods and services Zero Rated Goods and Services Reverse Charge Output VAT Any Goods or Services you barter or part exchange The value of any goods you have used for private use Property services supplied (rent and service charges) where you have opted to tax the building. What is not Taxable Turnover Sales of capital items such as buildings , machinery, cars Exempt supplies Voluntary Registration Yo u can apply to HMRC for voluntarily registration if: you are making taxable supplies where their value is under the £90,000 threshold. This will allow you to recover VAT expenses incurred. You are intending to make taxable supplies in the near future Register - onl ine here Tax Point R ules Tax points are the specific points in time when sales of goods or services take place and are governed by rules set out by HMRC. VAT registered businesses must account for VAT within the period the tax points for their sales occur. So if a tax point occurs in March and the businesses next VAT return period is January to March then the VAT on the sale will have to be included within the quarter ending March VAT return. Basic Tax Point Goods - The date when you send them to your customer or the customer takes them away or for goods assembled at a suppliers premises, when the goods are made available to the customer Services - The date when the service is performed — it’s normally taken as the date when all the work except invoicing is completed Actual Tax Point The basic tax point will be overridden if an actual tax point is created. An actual tax point is created when: An invoice is issued or payment is received (whichever is first) before the basic tax point. An invoice is issued up to 14 days after the basic tax point You do not have to follow the 14 day rule, but if you decide not to you must tell HMRC by writing to the VAT Written Enquiries Team . If you wish to have an extension of the 14 day rule, then you must apply to HMRC by writing to the VAT Written Enquiries Team , giving your reasons. Note: Failure to tell HMRC about extending the 14 day rule will result in the tax point reverting to the basic tax point. Continuous Supplies of Services If you supply services on a continuous basis and receive payments regularly or from time to time, there’s a tax point every time you issue a VAT invoice, or receive a payment, whichever happens first. If payments are due to be made at regular intervals (for example, by banker’s order or direct debit), you can issue a VAT invoice at the start of any period of up to one year (provided that more than one payment is due in the period) to cover all the payments due in that period. For each payment you should set out the: VAT-exclusive amount Date on which the payment is due Rate of VAT VAT payable If you decide to do this, you do not have to account for tax on any payment until the date on which it is due, or date you receive it, whichever happens first. Your customer must not reclaim, as input tax, any VAT shown on the VAT invoice until the date on which the payment is due, or you have received the payment, whichever happens first. The same procedures apply to continuous supplies of goods, in the form of water, gas and electricity. Goods supplied on sale or return, approval or similar terms When you supply goods on sale or return, for example, they have not been sold and you still own them until such time as they’re adopted by your customer. Adoption means that the customer indicates a wish to keep them. Until your customer does so, your customer has an unqualified right to return them at any time, unless you have agreed a time limit. You may have fixed a time limit of adoption of less than 12 months from the date when the goods were sent. If a time limit has: Been fixed for a period of 12 months or less, then the Basic Tax Point is the date the time limit expires Not been fixed or fixed for a period of more than 12 months, then the Basic Tax Point is 12 months from the date when the goods were sent Note: In either case if your customer adopts the goods before the time limit expires the date of adoption becomes the basic tax point. Also the basis tax point as mentioned above will be overridden by the actual tax point on the date an invoice issued by the business providing the goods or the date payment is received for the goods, which ever is earlier. If you receive a payment which is not returnable, this will normally indicate that the goods have been adopted. The payment of a deposit required as a condition of delivery — which is repayable if the goods are returned — does not constitute adoption. Finally, It is a businesses responsibility to make sure that its customers notify them promptly when they have adopted goods. Goods taken for personal or other non-business use Goods that are taken out of a business: Permanently for non-business use will have a basic tax point on the date when the goods are taken or set aside for this purpose Temporarily for non-business use, but they’re still part of its stock or business assets, then a tax point is triggered each time they’re used or — if the non-business use continues over a period of time — on the last day of each tax period that the goods are used or made available for that purpose VAT Returns VAT Registered businesses that make supplies of goods and services are required to file their VAT returns to HMRC either monthly or quarterly (depending on VAT scheme) to pay over the Output VAT collected on sales to their customers and also to recover any Input VAT they have incurred on supplies they have purchased for operating their business. The difference between the Output VAT collected and the Input VAT incurred will form the basis as to whether VAT is payable or recoverable from HMRC. VAT collected on Sales greater than VAT incurred on purchases = Payment due to HMRC VAT incurred on purchases greater than VAT collected from customers = Recovery of VAT from HMRC Any exempt and zero rated supplies a firm makes to its customers or purchases from its suppliers also need to be included on the VAT Returns in boxes 6 and 7 respectively. Partial Exemption - VAT Recovery In addition to Output VAT that is collected by a business on its sales and then paid over to HMRC, businesses can also recover VAT on expenses they incur. The recovery of VAT depends highly on the nature of the supplies being made by the business. Business is only making Taxable Supplies (Standard rated, reduced rate or zero rated) - then the Input VAT incurred on its purchases is directly attributable to its taxable sales and can be fully recovered from HMRC. Business only makes Exempt Supplies - Then it cannot recover any of the input VAT incurred on purchases as the input VAT is directly attributable to supplies of exempt goods or services. Businesses making a mixture of Taxable and Exempt Supplies - This type of business is known as a partially exempt business and because not all of its supplies are taxable, it can only recover a calculated percentage of the input VAT it has incurred. Partially Exempt Businesses - will be required to calculate their partial exemption recovery percentage or rate and then apply this rate to their pool of input VAT that they have incurred. The standard method for calculating the partial exemption recovery rate is as follows: Taxable Sales (Standard, Zero, Reduced Rate) / Total Sales (Standard, Zero, Reduced Rate, Exempt) = VAT Recovery Rate Percentage % Example - Standard Rated Sales £1,000, Zero Rated Sales £500, Reduced Rated Sales £200 and Exempt Sales £2,000 £1,000 + £500 + £200 / £3,700 = 46 % RR If the input VAT pool is £20,000, then the business can recover £9,189 from HMRC via its VAT return. Note: Many larger and more complex businesses (such as banks) will have Partial Exemption Special Methods which will have been formulated specifically for their business and agreed with HMRC. Many businesses will have multiple internal business areas and products and as such using the standard method may not be suitable. Once formulated businesses will be required to adhere to their agreed Partial Exemption Special Methods and keep HMRC up to date on any internal business restructures that might affect the agreed method. HMRC - has the right to issue a Special Method Override where they believe the existing method in use does not produce a fair and reasonable level of VAT recovery. Annual Input VAT Adjustments As part of the VAT return process partially exempt businesses are required to complete annual Input VAT adjustments to ensure the correct amount of VAT has been recovered from HMRC for the overall year. Normally businesses will file quarterly VAT returns which include VAT recoverable for the quarter. The recovery of VAT on the quarterly returns will be based on the input VAT allocated between Taxable and Exempt sales for the quarter or based on the previous years VAT recovery rates which are being provisionally used for the current year until the annual adjustment is completed. So VAT returns completed during the year are actually provisional in terms of the recovery of VAT. As such at the end of the year input VAT recovery will need to be revisited to: Review how input VAT has been used in the business to see if there has been any change in use. (Taxable / Exempt) Recalculate VAT Recovery Rates based on the current years sales data Review input VAT allocations to different areas of the business Once the above process has been completed, the recalculated input VAT recovery for the whole year will then be compared with the input VAT reclaimed on the quarterly returns. Any under or over recovery of VAT will then be refunded or repaid to HMRC normally via the first VAT return of the following year. From a business perspective, it maybe important to carry out mid year reviews of the VAT recovery by looking at aspects such as actual VAT incurred and Actual VAT recovery rates so as to not have large swings in irrecoverable VAT which can affect P&L where the input VAT throughput is significant. (Most relevant to partially exempt businesses where VAT recovery is high). Reverse Charges Where firms purchase services from non UK suppliers that would normally have VAT applied in the UK, they will have to self account for reverse charge VAT in the UK. The purpose of this measure is to ensure UK companies have a level playing field competitively and as such ensure companies do not make their purchases abroad just to avoid paying 20% VAT. The following purchases would attract Reverse Charge VAT Legal and Accountancy services Software Advertising Consultancy For example if a UK company purchased legal services from a company in France for £1,000 then the UK company would have to include £200 on its UK VAT return as output VAT and will equally it will able to include £200 as recoverable input VAT. Note: as mentioned under partial exemption above, the level of input VAT recoverable by a business will depend on the type of sales it makes. If a firm only makes taxable (standard and zero rated supplies), then it will be able to recover the full £200 reverse charge VAT which is payable to HMRC. In this case, as the reverse charge VAT payable is equal to the reverse charge VAT recoverable and as such there is nothing to pay HMRC. If the firm also made exempt supplies to it's customers and the French legal fee charge was not related to a specific taxable supply being made by the UK company, then it would only be able to recover a portion of the £200 reverse charge VAT based on its Partial Exemption Recovery rate. On its VAT return the business would enter £200 in box 1 (Output VAT) and £200 in box 4 (input VAT recoverable) and thus box 5 ( VAT payable of recoverable from HMRC ) would be nil. The net values of the services would go in box 6 (net outputs) and (net inputs) respectively. For more information on reverse charges, please click on reverse charge button on the home page. Pre VAT Registration Expenses Where a business buys goods or services before it registers for VAT, to support taxable business activities when it is registered, it can recover the tax provided that: in the case of goods (either stock for resale or fixed assets), the goods remain on hand at the date of registration and will be used in the newly registered business. These goods must have been bought within the time limits that are set out in regulation 111; for businesses with a registration date after 1 April 2010 the time limit will be 4 years in the case of services the supply was made not more than six months before the date of registration. Six months represents a period in which it is deemed that services obtained will relate to business activity carried on at the time of registration. Tax incurred on goods on hand at registration (other than capital items - see below) cannot be deducted if the VAT was incurred outside of the time limits set out in regulation 111. This includes VAT incurred on services performed on those goods. If a business is given a backdated registration date this becomes the relevant date for working out the extent of the time limits. Businesses are not required to reduce the VAT deducted in respect of pre-registration use of fixed assets. For example, VAT incurred on a van purchased three years before registration and used before and after registration would be recoverable in full, subject to the normal rules on VAT deduction. You can only reclaim VAT on purchases for the business now registered for VAT. They must relate to your ‘business purpose’. This means they must relate to VAT taxable goods or services that you supply. Please see below HMRC link for more information. VIT32000 - How to treat input tax: pre-registration, pre-incorporation and post-deregistration claims to input tax under regulation 111 - HMRC internal manual - GOV.UK (www.gov.uk) Required VAT Records and Accounts All taxable persons must keep and preserve certain records and accounts. This VAT record-keeping requirements that anyone who is registered for VAT must comply with includes: The VAT account What records must be kept Maintaining and preserving records For more information see Record keeping (VAT Notice 700/21) . -Contains public sector information licensed under the Open Government Licence v3.0. UK VAT Explained - What is VAT & when businesses need to register for VAT

World VAT Guides. Global VAT guides on how VAT and GST is applied in different countries. Including VAT and GST rates, VAT rules, the VAT and GST liability of goods and services. GLOBAL VAT Guides - Country VAT Guides - How VAT Applies VATDIGITAL.COM - Explore our Global VAT Guides for information and updates on VAT and GST rules and how they are applied to locally and international transactions including to non domiciled entities. Australian - GST Austria - VAT Canada - GST / HST China - VAT Denmark - VAT Germany - VAT EU - VAT French - VAT Estonia - VAT Ireland VAT Italy - VAT Japanese Consumption Tax Show More Argentina - VAT Chile - VAT Jersey - VAT Show More VAT For Businesses - EU Explore Luxembourg - VAT Nigeria - VAT Ghana - VAT South Africa - VAT Netherlands - VAT Norway - VAT Portugal - VAT Singapore - GST Spain - VAT Israel VAT Saudi Arabia - VAT Switzerland - VAT Show More Poland VAT India - VAT Kenya VAT Show More Ecommerce - Online Traders - EU One Stop Shop Explore

Banking and VAT - Explore how VAT applies to products and services in Banking and the the different VAT allocation and recovery models used. Introduction The world of banking can cover a broad spectrum of areas that can typically operate under a banking institutions umbrella. Traditionally banking was represented by retail and commercial banking where the main businesses was to provide a sanctuary for individual and commercial savings and at the same time provide loans and finance to individuals and businesses. However nowadays, many banks also offer Investment Banking and Private Banking services. Listed below are a number of services provided by the different areas of banking. (The list is not exhaustive) Investment Banking Inv estment Banking services are mainly provided to Large Public and Private Companies, Pension Funds, Governments, other Banks and Private Equity etc. Services Provided: Mergers and Acquisition Advisory - Advising on strategic transactions such as Acquisitions, Mergers, Joint Ventures, Leveraged Buyouts, Business Restructures Trading Platforms - That Facilitate the trading of Bonds (debt), Equities, Swaps, Options, Futures, Debt Financing - Bond issuance, Securitisation (Asset & Mortgage Backed securities), Loans, Liability Management Equities (stock)Lending - Acting as intermediary for a company that lends shares for a fee and a company that pays a fee to borrow the shares possibly for shorting. Initial Public Share Offerings - Advising and raising finance for the issue of shares to the general public Debt Underwriting - Arranging and underwriting the issuance of debt Share Underwriting - Underwriting shares during Initial public offerings (basically a guarantee to buy a portion of unsold shares) Risk Management - Providing clients with management solutions to better manage interest rate and foreign exchange risks and exposures Research - Carrying out general market, micro and macro economic research or specific sector research for clients for a fee Commodities Trading - Trading in physical commodities such as Oil, GAS, Electricity, Metals and Precious Metals such as Iron, Nickel, Gold, Silver, Palladium Private Equity - The pooling of funds to use to make acquisitions for investment purposes Market Data - The provision of real-time electronic data to companies, markets etc, to enable and assist decision making Wealth Management and Private Banking Wealth Management and Private Banking is mainly provided to private Individuals and smaller companies. Services Will include: Portfolio Management - Discretionary and Non Discretionary management of client assets Private Banking - A package of banking services for affluent individuals with levels of bespoke services for different grades of affluence. E.g. £100K to 500K, £1M to £10M, £10M to £50M etc. International Banking - A package of banking services offered to Expats etc Fund Management - The Management of pooled funds in Unit Trusts, OIEC's or through a fund supermarket owned by the bank or externally Model Portfolios - Bespoke portfolios that are designed specifically to achieve the investment goals of a group of clients Financial Advisory and Planning - Retirement Planning, Estate Planning, Executor and Estate Administration, Trustee Services, Pensions, Tax Advisory Financing - Trade, Real Estate, Boats. Yachts, Private Jets Execution Only - Retail share investing Credit Cards - Providing credit card services to clients Corporate Banking Corporate Banking is mainly provided to larger commercial enterprises where turnover exceeds between £5M - £10M. Some of these services are listed below. Business Banking - Providing business bank accounts to corporate clients International and Trade Finance - Providing international import and export financing, letters of credit Asset Financing - Providing financing solutions for acquiring cars, boats, planes, property Debt Factoring and Invoice Discounting - Proving working capital solutions by taking over a client's debtors for a fee to provide clients with smother cash flow. Inventory Finance - Providing finance to intermediary distributors of trucks, Tractors, Construction Equipment, Cars Cash Management - Finding the best return on client cash balances by moving the funds around to get the best rates Foreign Exchange - FX Trading Corporate Credit Cards - Providing corporate credit cards to firms Business Development loans - Loans to help businesses grow Retail Banking Retail Banking is mainly provided to individuals (general public) and small and medium sized businesses. Services include: Traditional Banking - The provision of bank accounts (current and savings) Cheque Clearing - The clearing and processing of cheques with other banks Mortgages - The provision of residential mortgages Personal Loans - Loans to consumers to buy cars, domestic appliances, Business Loans - Loans to businesses to fund growth and acquisitions Debit and Credit Cards - Provision of personal Debit and Credit Cards Insurances - Travel insurance, Residential Insurance Banking Income Most of the income generated by banks will either be: Fees Received Interest Received Commission Received VAT Liability of Services Supplied by Banks The VAT liability of banking income will depend on: Type of Service being provided to clients and customers The Place of Supply of those Services The Type of Client (business or non business) services are being provided to The Specific VAT rules governing the services being supplied Whether the Service is to a Branch, a VAT Group member or not The VAT liability will either be: Standard Rated (20%) Zero Rated Exempt Outside the Scope Type of Service Being Provided Financial Services are largely Exempt from VAT under the Financial Services VAT Exemption (VAT Act, Schedule 9, Group 5, 1-9). As such, many services offered by Banks will be Exempt when supplied in the UK. Services that are not covered under the Finance Exemption will be taxable at the Standard Rate (20%) when supplied in the UK by banks and other financial institutions . The Place of Supply of Services and the Type of Client The place of supply of services as mentioned under the place of supply tab, is determined largely by whether the supply is to a customer or client in business or whether the supply is to a non business customer . Business Customer Supplies to customers in business (VAT Registration is normally sufficient evidence) Supplies to customers that have both business and non-business activities such as charities, local authorities and government departments Non Business Customer A customer who is not in business Private individual Charity, Government Department or other body which has no business activities Services Supplied to Customers in Business Supplies to clients in business will be covered under the B2B (Business to Business) General Rule and thus the place of supply will be where the customer or client belongs . (Clients Country of Operation). Services Supplied to Non Busin ess Customers Normally supplies to Non business customers under the place of supply rules will be covered under the B2C (Business to Customer) General Rule and thus the place of supply will be where the supplier belongs. However there are special rules in place for particular B2C services (including Financial Services) that treat the place of supply of those services that would normally be taxable in the UK as being supplied where the customer or client belongs. List of Services Supplied by Banks and their VAT Liability As mentioned above, banks provide a broad spectrum of services and below is a list of B2B and B2C services both within and covered by the Financial Services VAT Exemption and those that are not covered. Note: The services listed below that are Exempt when provided to clients in the UK are within the scope of the Finance Exemption and the services that are Standard Rated are not. Below we have listed the main types of services offered by banks and the VAT liability for each service which depends largely on the type of client B2B or B2C and the service being offered. Retail "Day to Day Banking The Traditional service offered by banks to the retail sector (general public) of accepting cash deposits and providing advances and loans, cheque processing and clearing to customers where interest in earned by the banks as income is: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Insurance Services Many banks will offer insurance products such as home insurance, contents insurance, motor breakdown insurance to its customers. These services will be: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Corporate Finance (Mergers and Acquisitions) This service is mainly offered by Investment Banks and will involve providing Advisory Services in relation to potential acquisitions or mergers between companies. These services are: Standard Rated when provided to B2B and B2C customers in the UK Outside the scope of VAT (with recovery) when provided to B2B and B2C non UK Customers Corporate Loans (Including Mortgages) Corp orate Loans can be offered by retail banks to smaller businesses or by banks providing corporate banking services to larger businesses that turnover millions of pounds a year. The granting and advancing of credit falls within the Financial Services Exemption and is: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Execution Only Share Transactions Many banks will offer online trading platforms that facilitate execution only trading in securities such as equities whereby members of the public or companies can buy and sell shares. Execution only trading means the bank will act on the clients instruction to either buy or sell shares (with no advisory or recommendations involved) and the VAT liability is as follows: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Arranging the Issue or Placement of Securities Banks (Investment) involved in the arrangement or placement of shares, rights issues, coordination of an issue of shares where there are a number of participants, this service will be: Exempt when supplied to a B2B customer in the UK Outside the Scope of VAT (with recovery) when provided to a B2B customer Safe Custody Some banks offer safe custody services whereby clients can store documents such as share certificates, Gold, Silver, titles etc for a fee. This Fee is: Standard Rated (20%) for B2B and B2C when supplied to customers in the UK Outside the Scope of VAT (with recovery) when provided to a B2B or B2C customer Global Custody Global Custody may contain safe custody but will include a package of additional services such as the collection of dividends, interest etc. Where the service contains additional activities as described above along with safe custody, then the VAT liability will be: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Nominee Services Nominee Services whereby client shares will be held in the name of the bank on behalf of them. These services are: Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Stock Lending Stock lending describes a situation where one person, the ‘lender’, transfers to a second person, the ‘borrower’, the legal title, along with all the dividends and rights, to securities. The borrower agrees to return to the lender, at a later date, an equivalent number of the same securities as those received. Stock lending is : Exempt when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Share Underwriting Share underwriting where a bank will receive a commission or fee for guaranteeing to buy unsold shares during an Initial Public Offering (IPO) is : Exempt when supplied to a B2B customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B customers. Note: Any shares onward sold by the Bank will also follow the same VAT liability as above. Tax, Legal, Accountancy Adhoc services that may be provided by some banks or financial institutions are not covered by the Finance Exemption and are thus: Standard Rated 20% (taxable) when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Portfolio Management Portfolio Management services normally offered by the Private Banking or Wealth Management arms of banks for individual clients can be split into discretionary or non discretionary. These services can be offered either internally or via third party Investment Managers. (Portfolio Management does not fall within the Financial Exemption like the management of funds such as AUT's of OEIC's as the service is not a collective investment where large numbers of clients funds are pooled together and invested) Discretionary Portfolio Management is where the Manager will make investments on behalf of the client based on their goals and risk appetite Non Discretionary Portfolio Management is where the client makes their own investment decisions and may take recommendations or advice from the manager but will ultimately decide on the investments the manager should make on their behalf. Normally the Portfolio Manager (the bank) or the external Portfolio Manager will charge an Annual Management Fee which will be: Standard Rated 20% (taxable) when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. The Investment manager as part of the contract may apply a transaction charge (commission) for executing trades or buying and selling securities on behalf of the client. If these charges as part of the contract are a separate supply of dealing charges, then the VAT liability is as follows: Exempt when supplied to a B2B customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B customers. If these charges as part of the contract are bundled together as a single fee for Investment Management, then the VAT liability is as follows: Standard Rated 20% (taxable) when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Model Portfolios A Model Portfolio Service is a tailor made service designed by an Investment Manager(s) for a group of investors with the same investment aims. Funds are invested in a diverse range of assets and asset classes with the aim of reducing risk for clients. This service has traditionally been treated in the same way as normal portfolio Management by applying VAT on fees charged. However many portfolio managers are removing VAT from their fees charged to UK clients on the basis of a recent case (Tatton) where HMRC refunded a substantial amount of VAT on fees charged for their model portfolio service on the basis that the funds were pooled similar to collective investments. Futures Contracts - (Financial) Financial Futures are standardised derivatives contracts offered by and traded by Investment banks (as Futures Exchange Members) and allow investors to: Speculate on the price movement of an underlying financial instrument (Stocks, Interest Rates, Currencies, Indexes). Hedge against the movement of the price of a financial instrument. ( mainly companies that use the future contact as a hedge against to protect their own financial instruments ) Financial Futures can either be cash or non cash settled . Cash settled means there is no actual delivery of the financial instrument at expiry whereas Non Cash Settled means there is actual delivery of the instrument. Futures contracts are highly liquid and can be traded on Futures Exchanges prior to the expiration date. Income generated by banks from Futures contracts (commission earned by banks) is: Exempt from VAT when sold or traded with counterparties in the UK Outside the scope with recovery when sold to a non UK counterparty Financial Forward Contracts Financial Forwards Contracts (forwards) are similar in nature to Futures Contracts in that they both require the buyer and seller to set the quantity of a financial instrument and the date of delivery or expiry. However the major difference between the two is that whilst the Futures Contract is normally a standardised contract traded on a futures exchange , a Forward is a non standardised private agreement between a buyer and seller OTC. Note both futures and forward can be traded privately off exchange Over The Counter (OTC). Income /commissions generated by banks as broker to investors in Forward Contracts is: Exempt from VAT when sold or traded with counterparties in the UK Outside the scope with recovery when sold to a non UK purchaser Financial Options Options are Financial derivatives that are based on the value of underlying securities such as stocks, bonds, currencies and give the buyer the right to buy (call option) or sell (put option) the underlying asset on a specific date and and specific price. Unlike futures or forwards there is no obligation to actually buy the underlying asset. As such a premium is paid for the right to buy the options. Most options are equity options and are traded on exchanges and if exercised, settled via centralised clearing houses. Income generated by banks trading or facilitating the trading of options is: Exempt from VAT when sold or traded with counterparties in the UK Outside the scope with recovery when sold to a non UK counterparty Foreign Exchange Trading (FX) (Spots) Banks often act as brokers offering FX currency trading (Spots) to clients and charge commission. The Income generated will be: Exempt from VAT when sold or traded with counterparties in the UK Outside the scope with recovery when sold to a non UK counterparty Research Banks (investment) often have research departments that compile and sell investment research normally to companies to assist with their investment decisions. This research is: Standard Rated 20% (taxable) when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Trading Platforms Many larger banks may offer trading platforms "dealer systems" to their clients which allows them to buy and trade securities or provides live market data such as share prices or foreign exchange rates. Systems that purely provide market data services to users are taxable as follows: Standard Rated 20% (taxable) when supplied to a B2B and B2C customer in the UK Outside the scope of VAT (with recovery) when provided to Non UK B2B or B2C customers. Systems that allow users to insert bits and offers for securities and Match the parties anonymously and finalise the deal will be be covered under the Intemediary Exemption and Exempt from VAT. If the system does not match the parties on an undisclosed anonymous basis then the service will be vatable at the standard rate 20% Hire Purchase Banks may offer their customers Hire Purchase which allows them to pay installments over a set period for goods such a motor vehicles or washing machines with the option to make a final payment for the goods at the end of the payment term. Where the goods and finance are provided by the bank, then there will be two supplies one of goods and one of credit. For the supply of goods, the customer will be charged standard rated VAT at 20% immediately for the supply of the goods and the ongoing supply of credit repayable in installments will be Exempt. Factoring & Invoice Discounting Some banks may offer Factoring and or Invoice Discounting to clients. Factoring is where a factoring company (bank) purchases the outstanding debtor balances from a client for a charge and can either be recourse or non-recourse. Recourse is where the client maintains the responsibility and bears all the risks of debtor non payment. If the debtor goes bankrupt or the bank can't collect the funds from the debtor, then the client will have to buy back the debt from the bank. Non Recourse factoring means that the factoring company bears greater risk if a debtor defaults on its debt. Another feature of factoring is that it means the bank or factor can maintain a credit control facility for the debts and collect the debts directly from the debtors. Invoice discounting is where the bank provides a loan against the clients outstanding debtor balance for which the client can draw down against. The Debtor will be unaware that the client is using this facility. There can be many charges levied by the factor (bank) some of which may be Standard Rated 20% and others Exempt. Below is a list of the possible charge types and their VAT liability. Arrangement and or Activation Fee - Standard Rated 20% VAT if provided to UK Businesses and Zero Rated if provided to Non-UK business Discount Fee or Charge for Credit - Exempt if provided to UK Businesses and Zero Rated if provided to Non-UK business Service Charge - Standard Rated 20% VAT if provided to UK Businesses and Zero Rated if provided to Non-UK business Non Utilisation of Loan Facility Fee - Exempt if provided to UK Businesses and Zero Rated if provided to Non-UK business Early Termination Fee - Standard Rated 20% VAT if provided to UK Businesses and Zero Rated if provided to Non-UK business Funds Transfer Charges - Exempt if provided to UK Businesses and Zero Rated if provided to Non-UK business Legal and other Admin Fees - Standard Rated 20% VAT if provided to UK Businesses and Zero Rated if provided to Non-UK business Private Equity / Strategic Investments Banks can also as part of their business use its own funds along with other corporate clients or individuals to invest (or build up stakes) in external businesses with the aim of holding those businesses for investment purposes. I.e. Capital growth. Income generated from those investments can be dividends which are outside the scope of VAT or in the case where the bank is actively managing those investments and charging a fee to the other participant, this will be Standard Rated. BANK COSTS AND VAT Banks by their nature are not actively trading in physical goods and as such most of their costs will be professional or resource (staffing) related. Costs - Plus VAT For Banks, VAT will typically be incurred on professional service and IT related costs such as Information Technology Software and Software Development Virus and Anti Malware Protection Hardware such as Computers, Servers, Screens, Keyboards, Mouses Telecommunications and Equipment Market Data Brokerage Consultancy Services Legal Services Electricity Administration Furniture and Fittings Security Property Rental (opted properties) Other Asset Purchases for Hire Purchase or Inventory Finance Office Supplies Exchange Membership Licence Fees Exchange Admin Fees Exchange Access Fees Gate way / Terminal Connectivity Swift Messaging Advertising Sponsorship Research Costs - No VAT Banks will have significant Non Vatable Costs due to the large numbers of staff they employ. Wages and Salaries Income Tax and National Insurance Bonuses Property Rental (non opted) Pension Contribution Clearing Systems and VAT Banks may have a variety of systems (especially the larger banks) to record Income and cost and the associated output and input VAT respectively. Most of the time the number of different systems will be dictated by the number of acquisitions the banks have made over the years where they inherit different systems from each acquisition. However many will have core well established market leading systems (Accounts Payable and Accounts Receivable) such as SAP to record and account for VAT on the bulk of their sales and purchases and which can easily be integrated into into Tax Engines to churn out VAT Returns. From a VAT perspective, the most important and critical aspect for systems in today's digitalized world is their ability to apply the correct VAT code to specific transactions and their flexibility for full end to end automation of the VAT Accounting, Reporting and Recovery process. Sales and VAT Reporting Services provided by Banks to their customers (both internal and external) will need to be treated and categorised correctly for VAT to ensure: The correct amount of Output VAT is included on their VAT Returns and paid to HMRC The correct amount of VAT is included on sales invoices Their Partial Exemption VAT Recovery Rates and Actual VAT Recovery is accurate The best way to ensure the accuracy of above is to: Have a highly automated billing system with links to the static data system that stores clients name, type and location / country of operation details Have a digitalised VAT process that auto allocates income to the correct Partial Exemption sectors Have well trained front office billing staff who understand VAT and the differences created by billing to UK vs Non UK customers Have robust controls around the review and authorisation of invoices Have a Team of Tax or VAT specialist to monitor, advise and carry out regular reviews of the VAT billing Process Have multiple level VAT return reviews and investigate and seek explanations for any quarter on quarter exceptional variances Costs and VAT Reporting VAT incurred by banks on costs is often very significant and as such it will be high on management's radar to ensure: VAT allocation is aligned to cost allocation VAT recovery from HMRC is optimised VAT is recovered in accordance with the Partial Exemption Method agreed with HMRC VAT Recovered is allocated back to the correct business area (Equities, Corporate Finance, Corporate banking, Private Banking etc) VAT incurred on costs can be split into: Front Office VAT - VAT that is directly incurred and attributable to specific business areas such as Corporate Banking, Mergers and Acquisitions, Fixed Income Bond Trading, Corporate Loans, Foreign Exchange Back Office or Infrastructure VAT - General VAT incurred for all business areas such as IT, Consultancy, Electricity, Security, Administration. Partial Exemption Methods and VAT Allocation Most banks will be partially exempt in that they provide taxable and exempt services to their clients and as such will have agreed methods with HMRC for allocating and recovering VAT incurred on their costs. Note: Partially exempt means that not all of the VAT incurred on costs will be recoverable from HMRC, only a portion. These agreements are known as Partial Exemption Special Methods (PESM) and will be different for each bank. They contain precise details of how VAT will be allocated to the different agreed sectors (Equities, Investment Banking, Retail Banking, Derivatives etc) and also how VAT recovery should be calculated. So the agreements will stipulate how VAT will be allocated. For example based on the: Firms internal Cost Allocation Methodology Business Area Activity Business Area Front Office Headcount Others VAT Recovery The recovery of VAT in banks will be based on specific formulas as stipulated in the Partial Exemption Special Method. Most will be in the following format: VAT Pool X Taxable Sales (Standard Rated + Reduced Rate + Zero Rated / Total Sales (Taxable + Zero Rated + Exempt) = VAT Recoverable % Note: The amounts in the above categories can be in the form of sales values , no of transactions , no of sales credits etc and will depend on what is agreed in the PESM Looking at the above formula, it can be seen that the level of VAT recovery will be dependent on the ratio of taxable sales to total sales. The more exempt sales a bank has the lower the VAT recovery The greater the taxable sales a bank has the greater the VAT recovery will be. VAT Recovery Methods Due to the complex operational nature of banks and their varied products, most will have agreed Partial Exemption Special Methods (PESM) with HMRC. These agreements prescribe in detail how input VAT will be allocated and the methods to be used in the various areas of the bank to recover VAT. Standard Method - is simply a values method as shown below but may have special rules depending on the products supplied : VAT Pool X Value of Taxable Sales / Total Value of Sales = VAT Recoverable % Partial Exemption Special Methods (PESM) - Can include Values, Transaction Counts, Sales Credits etc as agreed with HMRC for the different business areas or sectors within a bank. There are a number of typical Partial Exemp tion S pecial Methods (agreed method with HMRC for the allocation and recovery of input VAT) in use by Banks namely: Values Based Method Transaction Count Method Sales Credits Method Mixture of Above The method used will depend on the complexity of the banking business. A purely Retail or Corporate banking business will be able to use the standard values method which uses revenue values to calculate the VAT recovery rate (RR) to be applied to the pools of input VAT to determine the level of VAT the bank can recover from HMRC. The Recovery Rate Calculation is: Values Based Method (Std Rated + Reduced Rate + Zero Rated) (Std Rated+ Reduced Rate+ Zero Rate + Exempt ) = RR Note the method can be used in conjunction with the other methods Pros Data usually easy to extract from Accounting System Easy to review, audit and verify source data Uncomplicated or time consuming Cons Assumes larger Loan book areas use higher input VAT (not always the case so input VAT allocation needs to be accurately based on use) Not alwa ys suitable for more complex operations like Investment Management, Wealth Management and Investment Banking Transaction Count Method This method uses transactions instead of values by tallying up each transaction for example each receipt of a fee or commission (less any refunds) in each business area . For example equities, credit, FX, Bonds or Fixed income etc. As this method measures each business transaction, it can be more accurate in terms of calculating the correct VAT recovery rate for more complex business areas. The Recovery Rate Calculation is: No of Trans (Std Rated + Reduced Rate + Zero Rated) No of Trans (SR+ R Rate + Zero Rate + Exempt ) = RR Pros More suitable for complex banking operations Transactions are more reflective of use than values Likely to produce a more accurate VAT recovery rate than the values method Cons Extracting the data and maintaining the reports and systems that support this can be time consuming and tedious. Annual reviews of data sources and IT sign-offs will be required to ensure accuracy of the transaction count data Takes much longer to compile and review the data to be able to calculate the annual adjustment Sales Credit Method This is a more modern method which uses the internal Sales Team reward and incentive system which is based on the level of sal es each team generate. Basically noti onal sales credits (values) are allocated to each product sales team based on the level of sales generated for each product. It is a values based system albeit not actual sales values. The ke y here is tha t the notional values allocated are reflective of the level of sales in each team and credits allocated are reviewed at multiple levels to ensure the rewards to the product teams Credit, Equities, FX, FI are reflective of performance . The Recovery Rate Calculation is: Sales Credits Non UK (Zero Rated) Sales Credits (Non UK (Zero Rated) ) + Exempt (UK)) = RR Note: This method will mainly be used for calculating the partial exemption recovery calculation for exempt type services such as equities, bonds, derivatives trading etc as the sales credit data can be split into UK / Non UK notional values and thus exempt / zero rated. Using it for banking would be tricky as the sales credits allocated to the UK would be for a mixture of taxable and exempt products and a further split at this level may not be readily available or reliable enough for the PESM calculation. Pros Data collection is much easier than the traditional values and transaction count method as it's usually readily available because the data is used internally for annual reward. Don't have to source data from multiple sources compared to other methods. Potentially quicker PESM calculation Values directly linked to activity Cons Reliance on non finance area to provide data which can increase bottle neck risks . Queries have to be referred back to different teams HMRC VAT Notice 706 ( Extract on Special Methods) 6. Special methods 6.1 The definition of a ‘special method’ A sp ecial method is any calculation, other than the standard method, that enables you to calculate how much of your input tax you may recover. It must only allow you to recover the input tax on your purchases to the extent that you use these purchases to make taxable rather than exempt supplies now or in the future. Supplies that are made outside the UK that would be taxable if in the UK and certain exempt supplies to non-UK customers also gives the right to recover input tax, but there are special rules (see section 9). A special method is unique to your business, and you can develop it to deal with your particular business circumstances. However, you must not use a special method, nor change a special method that you are already using, without our written approval. With effect from 1 January 2011 you may apply for a special method (known as a ‘combined method’) which combines your business or non-business (other than private use) and partial exemption calculations. See paragraph 7.1 for more information. 6.2 Get approval for a special method You cannot change your method without our prior approval. You must continue to use your current method, whether that is the standard method or a special method, until we approve or direct the use of another method or direct termination of its use. You can get approval for a special method by using one of these options: the online service in writing to the VAT Written Enquiries team at BT VAT, HM Revenue and Customs, BX9 1WR, United Kingdom by email to: PESM@hmrc.gov.uk From 1 August 2022, you will no longer be able to send a special method request to the PESM@hmrc.gov.uk email address. Only write to the Written Enquiries team if you are unable to use the online service. You must explain clearly how your proposed method will work, you should see Appendix 2 in this guide. When you propose a special method you must include a declaration that the method is fair from its effective date of application, and for the foreseeable future so that from its effective date a fair amount of input tax is recovered. If we subsequently find your declaration to be incorrect we may serve a special method override notice (see section 8 for more information about the special method override notice) to override the method so that from its effective date input tax would be recovered according to the use of purchases in making taxable supplies. A declaration is incorrect if 2 conditions are not met, the: method does not produce a fair and reasonable attribution of input tax to taxable supplies resulting in an unfair over-recovery of input tax person signing the declaration knew or ought reasonably to have known this at the time they made the declaration If you apply to change your existing special method this is an application for a new method and you will also have to provide a declaration. The declaration can be made using the template at Appendix 1. All approvals and directions of special methods must be given in writing by HMRC. If we decide to approve your method, we will set it out in a format which includes standard terms and conditions. A covering letter will be sent to you with the method asking you to check that it accurately reflects your proposal. Unless you raise concerns within 30 days we will assume that you’re content with the approved method. If we decide not to approve your method we will write to you explaining the reasons why, and where appropriate, invite you to make further or modified proposals. If you make a further or modified proposal you will need to make a new declaration. If there are specific aspects of the method that you need to discuss, you may do so before making a firm proposal, saving the need for an additional declaration. You will usually be allowed to use the new method from the start of the tax year in which the declaration to the written application (being the approved application) is received. See section 8 about the special method override notice. 6.3 What a special method can contain A special method is unique to your business and can contain any calculations or stages that are needed to make sure it is fair and reasonable. All special methods should: reflect all your business activities provide for direct attribution of input tax to taxable supplies provide for direct attribution of input tax to exempt supplies identify residual input tax calculate the element of residual input tax that relates to taxable supplies calculate the element of residual input tax that relates to exempt supplies allow you to determine the total input tax that you can recover 6.4 Dealing with different parts of your business separately in your special method If a method calculates a separate recovery rate for each sector it is commonly referred to as a ‘sectorised’ method. Partial exemption sectors might arise naturally from the way your business organises itself, for example, if your business has discrete areas, activities, or even accounting centres, in which you use your input tax differently. This is most likely where your business is large and complex, or where your business consists of a VAT group of separate businesses. Very often, the best way to get an accurate partial exemption recovery method in the least burdensome way is to base it on your internal cost accounting system used for management reporting purposes. However, there are circumstances where this is inappropriate, for example, where costs are reported on a marginal basis. If you propose a method based on internal cost accounting, you will need to explain the kind of system being operated and what controls are in place to make sure that it’s accurate. 6.5 How to determine the recovery rate for residual input tax When you use the standard method the percentage recovery rate for residual input tax is calculated using the values of supplies made by your business. When you use a special method you can determine your percentage recovery rate using other allocations and apportionments. You can even use a different type of calculation for each sector if you have a ‘sectorised’ method. 6.6 Examples of allocations and apportionments Some examples are: output values numbers of transactions staff time or numbers inputs or input tax floor area costs allocations management accounts This list is not exhaustive and if you use any of the above you must make sure that the resulting calculation produces a result that is a true reflection of the use to which your input tax is put. The most common apportionment methods are output values and number of transactions, although some of the others can work in some circumstances. However they are more common as allocation methods between business sectors. More information can be found in PE30000 — VAT partial exemption guidance . 6.7 Rounding in special methods You must calculate the percentage recovery rate produced in your special method to 2 decimal places. 6.8 Changes in your circumstances If you operate a special method and there’s any change in your business circumstances, or if you’re a VAT group and there’s any change in the group membership that may have a significant impact on the amount of input tax you can claim, it’s important that you tell us immediately. If your method is no longer suitable for your business, you should propose an alternative method. If you fail to propose a suitable method, we may direct you to use a specified method. In some circumstances a special method override notice (see section 8) may need to be served. 6.9 HMRC imposing a method We have the power to direct a business to use a particular method or to stop using an existing special method. These powers are only used in circumstances where we are unable to identify a mutually satisfactory method, or where the VAT system is being abused. Directions are made in writing and apply from the date they’re given, or from a specified future date. If you disagree with the issue of a direction you can ask for either of the following: a review of our decision an appeal to be heard by an independent tribunal There’s more information about what you can do if you disagree with our decision in a HMRC factsheet and customer guidance which can be found at in HMRC1: HM Revenue and Customs decisions — what to do if you disagree . 6.10 Annual adjustments when using special methods You have to follow a similar procedure to the standard method to calculate the annual adjustment for a special method (see section 12). 6.11 Gaps in special methods A special method is said to have a ‘gap’ whenever it fails to specify how to deal with an amount of residual input tax. Gaps most commonly arise when business circumstances change after methods have been approved. Residual input tax falling into a ‘gap’ is to be recovered to the extent that the purchases on which the input tax is incurred are used in making taxable supplies. Where the treatment of input tax on purchases is only partly covered by the method, that is, part of the input tax falls into the ‘gap’, only that part of the input tax not covered by the method comes under these rules. This does not mean that we think that methods with ‘gaps’ are acceptable but merely sets out how to cope with gaps if they arise in future. Once a gap has arisen, we expect that you will make suitable proposals for a new method that takes account of the gap and any other known faults in your current method. VAT and Inter- Company Recharges VAT Group Members - If a bank operates within a VAT Group structure, then most of the Internal inter entity recharges between VAT Group members will be outside the scope of VAT and thus VAT will not feature on any invoicing between the entities. However problems can arise where non UK entities recharge into the UK where the Non UK entity is not within the UK VAT Group (by way of being a branch of a VAT group member) and thus significant Reverse Charges can become applicable on cost recharges to UK entities for: Staff Consultancy Intangible Assets (Goodwill) IT Costs If the Reverse charge VAT has not been budgeted for locally, then businesses can end up having significant irrecoverable VAT costs hitting their P&L where they are not able to fully recover the reverse charge VAT from HMRC. International Banks and Sourcing Banks that have global operations will tend to want to ensure that where supplies of IT and other services are purchased: Services are provided by local suppliers where possible to the entities using the services Services are billed and delivered to the entities using the services The contracts state who is purchasing the service, consuming the service, ultimately paying for the service This can avoid situations where the services are billed to the UK and incur UK Reverse Charge VAT but actual consumption and use of the services occurs in non UK locations. Although full recovery of the VAT is possible, it can often mean lots of administration to achieve. Recharging of Professional Costs to Clients As part of providing services to clients, banks will often incur legal and other professional fees which they will then recharge on to their clients. The VAT element of the cost will also often be recharged depending on whether the banks can recover the costs from HMRC. The recovery of the VAT incurred on these cost by the bank will depend on the services being supplied to the associated client and the location of the client. See below table for illustration. Vendor Location UK VAT Service Type VAT Recovery By Bank Location of the client UK UK 20% Taxable (advisory) Full VAT Recovery UK / Non UK Non UK 20% RC VAT Exempt Irrecoverable VAT UK Non UK 20% RC VAT Exempt Full VAT Recovery Non UK Where the bank can achieve full recovery of VAT as in the above examples, it can then bill the clients for the net value of the professional services invoice. Where the VAT is irrecoverable by the bank from HMRC in the above examples, it may then seek to recover this VAT from the clients by billing the client the net value of the invoice plus the VAT incurred or reverse charged ( VAT self accounted for to HMRC). Risk Management and Controls One of the main areas of focus in Banks and more specifically Finance and Tax will be around having an adequate and robust control environment to ensure the accuracy of internal and external reporting and to prevent errors. A large part of this will be to create and maintain a strong control environment from the top downwards and ensure this is embedded within the culture of the bank. In Terms of VAT , the following list of activities and controls will all help to minimise the risk of errors. Up to date VAT Coding within front office billing systems Up to date VAT coding within the accounts payable system Up to date and thorough procedure notes for VAT return preparation Multiple reviews of all manual VAT related Journals Multi-level review of all VAT Returns and Annual Adjustments Automating manual processes to eliminate human error Elimination of spreadsheet based VAT reporting (MTD VAT Compliant) Annual or bi-annual E2E Integrity Review of VAT reporting process and systems Regular multilevel reviews of VAT accounts Service Level Agreements between VAT Team and Finance / OPS Regular training of VAT staff supported by decision trees and diagrams Ensuring regular engagement with Finance to ensure VAT is considered and built into new systems Regular review of Partial Exemption Methods and Partial Exemption calculations Adequate New Product and Trade sign-off procedures Impact Assessments for all changes to systems Automated VAT Return Production including VAT allocation and input VAT recovery Error Correction Notifications to HMRC followed up with remedial actions and controls to prevent error repitition Risk reporting process that highlights impact of errors on P&L and the required action to remediate Maintaining good relationships and ensuring transparency with HMRC Key Current VAT Related Issues In Banking Electronic Invoicing Making Tax Digital (MTD) HMRC Review - Establishment and Branches ( Fixed Establishment or Brass Plate) European Commission - Review of Financial Services & insurance Model Portfolios - wealth and Investment Managers Skandia and Danskie Bank (reverse skandia) CJEU rulings Sub - Participation vs Syndication The VAT Act 1994 - Schedule 9, Group 5 (Finance VAT Exemptions) Item number 1. The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money. 2. The making of any advance or the granting of any credit. 2A. The management of credit by the person granting it. 3. The provision of the facility of instalment credit finance in a hire-purchase, conditional sale or credit sale agreement for which facility a separate charge is made and disclosed to the recipient of the supply of goods. 4. The provision of administrative arrangements and documentation and the transfer of title to the goods in connection with the supply described in item 3 if the total consideration thereof [sic] is specified in the agreement and does not exceed £10. 5. The provision of intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity. 5A. The underwriting of an issue within item 1 or any transaction within item 6. 6. The issue, transfer or receipt of, or any dealing with, any security or secondary security being - (a) shares, stocks, bonds, notes (other than promissory notes), debentures, debenture stock or shares in an oil royalty, or (b) any document relating to money, in any currency, which has been deposited with the issuer or some other person, being a document which recognises an obligation to pay a stated amount to bearer or to order, with or without interest, and being a document by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable, or (c) any bill, note or other obligation of the Treasury or of a Government in any part of the world, being a document by the delivery of which, with or without endorsement, title is transferable, and not being an obligation which is or has been legal tender in any part of the world, or (d) any letter of allotment or rights, any warrant conferring an option to acquire a security included in this item, any renounceable or scrip certificates, rights coupons, coupons representing dividends or interest on such a security, bond mandates or other documents conferring or containing evidence of title to or rights in respect of such a security, or (e) units or other documents conferring rights under any trust established for the purpose, or having the effect of providing, for persons having funds available for investment, facilities for the participation by them as beneficiaries under the trust, in any profits or income arising from the acquisition, holding, management or disposal of any property whatsoever. 7. [Omitted by SI 1999/594, article 4] 8. The operation of any current, deposit or savings account. 9. The management of an authorised unit trust scheme or of a trust based scheme. 10. The management of the scheme property of an open-ended investment company. Banking and VAT-Guide on How VAT Applies in Banking

Ireland VAT Guide, including how VAT works in Ireland including the rules around VAT Registrtaion, VAT recovery, importing and exporting and much more. Introduction Value-Added Tax (VAT) is a tax, which is payable on sales of goods or services within the territory of the Member States of the EU. The tax, in all cases, is ultimately payable by the final consumer of the good or service. Each party in the chain of supply (manufacturer, wholesaler and retailer) acts as a VAT collector. They collect VAT from their customer and include that VAT in their VAT return to Revenue. When returning the VAT collected, they can reclaim as appropriate, VAT which has been charged to them by their suppliers. Current VAT Rates in Ireland (Effective 1 January 2023) Standard rate (23 %) Reduced rate (13.5 %) Second reduced rate (9 %) Livestock rate (4.8 %) Flat-rate compensation percentage for Farmers (5 %) Accountable Person An accountable person is a taxable person (for example, an individual, partnership, company) who: supplies taxable goods or services in the State and is registered or required to register for VAT. As such they are required to charge VAT in the State. Taxable Person A taxable person is any person who independently carries out a business in the European Union (EU) or elsewhere. It includes persons who are exempt from Value-Added Tax (VAT) as well as flat-rate (unregistered) farmers. Exemption From VAT Where a taxable person supplies only exempt goods or services, they are not generally entitled to register for Value-Added Tax (VAT). However, in specific circumstances the trader may be required to register and account for VAT. This occurs where the trader makes intra-Community acquisitions , or is in receipt of services from abroad. Likewise, a taxable person who also supplies taxable goods or services may be required to register for VAT. However, VAT registration relates to your taxable supplies. Therefore, if you carry out both exempt and taxable activities, you can only reclaim VAT relating to your taxable activities. VAT Registration Generally, you must register for VAT if you are an accountable person . A person carrying out only exempt activities or non taxable activities may not register for VAT. However, a person carrying on exempt activities or non taxable activities may have to register for VAT in certain situations, for example: acquiring goods from other Member States or receiving services from abroad . If you have set up a business but have yet to supply taxable goods or services, you may reclaim VAT on your start-up costs. However, to do so you are required to register for VAT. This will enable you to obtain credit for VAT on purchases made before trading begins. Traders whose turnover is below the VAT thresholds, farmers and sea fishers are not generally obliged to register for VAT. They may, however, elect to register for VAT. VAT Registration Thresholds Value-Added Tax (VAT) registration is obligatory when your turnover exceeds, or is likely to exceed, the VAT thresholds. The thresholds depend on your turnover in any continuous 12 month period. The threshold for intra-Community distance sales of goods and cross-border telecommunications, broadcasting and electronic (TBE) services relies on your turnover in a calendar year. If the turnover is less than a threshold limit, you may elect to register for VAT. The principal thresholds are as follows: €37,500 in the case of persons supplying services only. €10,000 for taxable persons making mail-order or intra-Community distance sales of goods and cross-border TBE services into the State. The threshold is calculated by taking account of the suppliers, or deemed suppliers , total value of intra-Community distance sales of goods and cross-border TBE services to customers in all European Union (EU) Member States. The threshold only applies where the supplier is established and has their permanent address, or usually resides, in only one Member State. Otherwise the supplier must register for Irish VAT in respect of such supplies. See the intra-Community distance sales of goods and the Electronically supplied services webpages for further information. €41,000 for persons making acquisitions from other EU Member States. €75,000 for persons supplying goods. €75,000 for persons supplying both goods and services where 90% or more of the turnover is from the supplies of goods. However, while all goods and services are part of the turnover, the 90% does not necessarily include all goods sold. The 90% figure does not include goods which you: sold at the standard or reduced rates and manufactured or produced from zero rated materials. A person, while not established in the State, needs to register and account for VAT if that person supplies: taxable goods to ‘taxable customers’ in the State or services to ‘taxable customers’ in the State. This applies irrespective of the level of turnover. How is Turnover Determined Your turnover figure may exceed the threshold limit. However, you may not be required to register for VAT. For registration purposes, the turnover figure may be reduced by the amount of VAT paid on stock bought for re-sale. You should use this reduced turnover figure to see if you can register for VAT. This adjusted turnover figure is used only for the purposes of determining your turnover for registration for VAT. Example Michael has an annual turnover of €80,000. He has incurred VAT on his stock purchased for re-sale in the amount of €11,220. Michael can reduce his turnover figure by the €11,220 when determining whether he has breached the threshold. €80,000 minus €11,220 equals €68,780. As the adjusted turnover is below the registration limit of €75,000, he is not obliged to register. Requirement to Register where Goods or Servic es Purchased from Abroad Usually the following persons would not need to register for Value-Added Tax (VAT) in the state: Non VAT registered businesses Exempt businesses such as banks Public bodies such as local authorities, State agencies and semi-State bodies Farmers, fishers or race horse trainers. But they may have to register and account for VAT, for received taxable services from outside the State or Intra-Community Acquisitions. Exempt and Certain Non Taxable Persons Acquiring Goods Within the EU Exempt persons and certain non-taxable persons are obliged to register and account for VAT in certain situations. Such situations include where they buy or are likely to buy, goods from other Member States. You need to register when the goods exceeds, or are likely to exceed €41,000 in any 12 month period. Flat-rate farmers, fishers and race-horse trainers may be required to register in respect of receiving such goods, subject to the relevant threshold. They can retain their unregistered status in respect of their farming or fishing activities. You may not reclaim VAT if you are an exempt or non-taxable person. Exempt and Certain Non Taxable Persons Receiving Services From Abroad (Reverse Charges) Exempt persons and certain non-taxable persons must register and account for VAT if they receive taxable services from abroad. This obligation arises irrespective of the value of those services. Flat-rate farmers, fishers and race-horse trainers need to register if they receive such services. They can retain their unregistered status in respect of their farming or fishing activities. You may not reclaim VAT if you are an exempt or non-taxable person. Paying VAT on Services Received from Abroad (Reverse Charges) You must pay VAT on the invoiced amounts at the appropriate Irish VAT rate to Revenue in your periodic VAT return. You may qualify to reclaim the VAT at the same time. By passing your VAT number to the supplier, you will avoid paying VAT in the other Member State. For M ore Information on Registering f or VAT Click this Link Registering for VAT Modernisation of VAT & Implementation of e - Invoicing The Irish Revenue has published a report on the Modernisation of VAT and the Implementation of e - invoicing in Ireland including the adoption of VIDA and a phased approach for e - invoicing from 1 November 2028. Please see the report link below. VAT Modernisation - Implementation of eInvoicing in Ireland Other Key Areas of VAT Charging VAT VAT Invoices Financial Services Agriculture Import & Export e commerce Accounting for VAT Property VAT on Services VAT on Goods VAT Recovery Non Established Credit Notes Self Billing VAT Records Construction Rev Chgs CG Scheme Retail Export Ireland-VAT Guide - Key Aspects of Irish VAT

Use our VAT Advisor powered by artificial intellegence to obtain detailed answers and summaries to questions you may have regarding UK & Global VAT compliance issues. VAT Digital AI - Intelligent VAT Advisor Online 24/7 ® At VATDIGITAL.COM - we aim to provide you with the latest VAT News, Compliance Guides, VAT Rules and information on topics such as VAT Accounting, VAT Risks and Controls, UK HMRC and Global Tax Authority updates, VAT Technology Tools and much more. To assist you in getting the most benefit from our website, we now have a VAT Advisor driven by artificial intelligence which will provide you with detailed guidance on a range of questions you may have in relation to VAT. Our online VAT Advisor will be able to assist on a range of topics including VAT Registration, VAT Invoicing, VAT Recovery, VAT Accounting, VAT and the P&L / Balance Sheet, Importing and Exporting, Recovery of VAT on Bad Debts, VAT Compliance Automation, VAT Risks, Mergers & Acquisitions VAT Due Dilligence, VAT and Online Market Places & Trading, VAT and Financial Services including Banking, Insurance, Commodities Trading, VAT and the Construction Industry and much more. Artificial Intelligence is fast becoming an integral part of the global tax function as companies continue their digital journey. Companies that don't embrace this technology will simply be left behind as it will be used to streamline Finance, Supply Chains, VAT & Tax Compliance / VAT Advisory and will deliver huge efficiencies and cost savings. The evolution of AI continues with Agentic AI, which moves away from prompt based generative AI to an AI agents based model. A collection of AI agents can plan and carry out tasks autonomously to achieve a desired objective such as preparing reports, Budgets, Financial Accounts, VAT and Tax Returns, VAT & Tax Reconciliations, VAT and Tax Analytical Reviews etc. AI and AI agents will completely revolutionise the Accounting and Tax landscape in the coming years - watch this space! VAT AI Advisor <

FTT - Barclays Services Corp vs HMRC - Fixed Establishment & HMRC Protection of Revenue Barclays Services Corp vs HMRC (Fixed Establishment) UTT Decision 8 June 2026 - UTT upholds HMRC's refusal to admit Barclays Services Corporation to the BBPLC VAT Group. (Upper Tribunal Tax and Chancery Decision of MR JUSTICE RAJAH and JUDGE THOMAS SCOTT on 08 June 2026) Dismissed on the grounds that it did not meet the necessary eligibility requirements for VAT grouping at the date of the application in terms of having sufficient human and technical resources in the UK to have a Fixed Establishment. UTT - disagreed with FTT conclusion on Protection of Revenue and would have concluded the opposite Link to UTT ruling below: ( 1) BARCLAYS SERVICES CORPORATION (2) ... In the FTT judgement, two key points were addressed: Whether BSC UK branch had a Fixed Establishment in the UK Whether HMRC had sufficient grounds for refusing the application for BSC UK Branch to join the VAT Group for the protection of the revenue. Barclays appeal against the rejection of its application for a UK branch of BSC US to join the VAT Group was dismissed on the grounds that it did not meet the necessary eligibility requirements for VAT grouping at the date of the application in terms of having sufficient human and technical resources in the UK to have a Fixed Establishment. The FTT however dismissed the second point on "protection of the revenue" on the basis that, had BSC UK had the necessary human and technical resources to be considered as having a fixed establishment in the UK as at the date of the application to join the VAT group, the VAT savings on its admission would be those that fell within the normal consequences of VAT grouping. See link to full FTT judgement below: Barclays Service Corporation & Anor v The Commissioners for HMRC - Find case law - The National Archives

UK Tax Rates: Corporation Tax, Income Tax, Inheritance Tax and VAT UK - TAX Rates Corporation Tax Rates Rate 2024/25 Main Rate 25% Small Profit Rate 19% Marginal Rate 26.50% Capital Gains Tax Rates Asset 2024/25 Residential Property 25% Other Assets 19% Investment Trust 28% (Carried Interest) * Tax Free Allowance £3,000, £1,500 Unit Trusts VAT Rates Rate 2024/25 Standard Rate 20% Reduced Rate 5% Zero Rate 0% Income Tax Rates Band Taxable Income Tax Rate Personal Allowance upto £12,570 0% Basic Rate £12,570 - £50,270 20% Higher Rate £50,271 - £125,140 40% Additional Rate £125,140 and above 45% Inheritance Tax Rates Band Taxable Income Tax Rate Tax Free Threshold £325,000 0% Taxed Above £325,000 40% Personal Savings Allowance Income Tax Band Personal Savings Allowance Basic Rate £1,000 Higher Rate £500 Additional Rate £0 Tax on Dividends Income Tax Band Tax Rate Over the Allowance Basic Rate 8.75% Higher Rate 33.75% Additional Rate 39.35% * Dividend Allowance TY 2024 /2025 = £500 Stamp Duty Land Tax (SDLT) Property Value SDLT Rate 0 to £125,000 0% £125,001 to £250,000 2% £250,001 to £925,000 5% £925,001 to £1,500,000 10% £1,500,001 and above 12%

VAT Guide for Norway. Find out how VAT works in Norway including VAT Rates, VAT registration, imports and exports, VAT liability of goods and services etc. Introduction In Norway, Value-Added Tax (VAT) is known as Merverdiavgift (MVA). Managed by the Norwegian Tax Administration (Skatteetaten), the system is designed to be highly digitized, moving towards real-time reporting via SAF-T (Standard Audit File for Tax). As of 2026, several significant updates have been implemented, particularly regarding cross-border services and electric vehicles. VAT Rates in Norway Norway uses a tiered rate system. While the standard rate is among the highest in Europe, several essential services enjoy reduced rates. Rates Applicable: 25% Standard Rate - Most goods and services (clothing, electronics, etc.) 15% Reduced Rate - Food & Drink Food stuffs and beverages (excluding tobacco/alcohol) 12% Low Rate - Transport, cinema, hotel stays, sports events Zero-Rated - Exports, books, newspapers, and certain EVs (up to a limit) Exempt - No VAT - Health services, education, financial services Note on Electric Vehicles (EVs): As of 2026, the VAT exemption threshold for electric cars has been reduced to NOK 300,000. Only the portion of the purchase price exceeding this amount is subject to the 25% VAT rate. Registration Requirements Registration is mandatory once your turnover exceeds a specific threshold within a 12-month period. Standard Businesses: NOK 50,000 Charitable/Non-profit: NOK 140,000 Key Rules for Foreign Companies: VAT Representative: If you do not have a fixed place of business in Norway, you must generally register through a Norwegian VAT Representative. Exception: Companies from certain EEA countries (including the UK) may register directly without a representative. VOEC Scheme: For B2C sales of low-value goods (under NOK 3,000) or digital services, foreign sellers can use the simplified VAT on E-Commerce (VOEC) scheme, which does not require a local representative. 2026 Changes & Regulations Significant legislative updates came into force on January 1 and July 1, 2026. Multi-Location Entities (MLEs): From July 1, 2026, new "reverse charge" rules apply to cross-border services within the same legal entity. If a head office abroad buys a service for use by its Norwegian branch, Norwegian VAT must now be accounted for. Related-Party Receivables: Effective January 1, 2026, the right to claim a VAT deduction for "lost" receivables between related parties is restricted if the debt remains unpaid for more than 24 months. SAF-T Reporting: Norway requires the use of the SAF-T (Standard Audit File for Tax) format. This means your accounting software must be able to export data in a specific XML format for tax audits. Reporting and Deadlines The standard reporting period is bi-monthly (every two months). Smaller businesses may apply for annual reporting if their turnover is below NOK 1 million. The Standard VAT Registration Checklist If your business sells goods/services in Norway (B2B or physical storefronts) and exceeds NOK 50,000 in turnover over 12 months, follow this path: Step 1: Get an Organization Number Register your business as a Norwegian-Registered Foreign Company (NUF) via the Brønnøysund Register Centre (Form BR 1080). Timeline: Usually 2–3 weeks. Step 2: Appoint a Representative (If Required) Required for non-EEA companies. Companies from the UK, EU/EEA (e.g., Germany, France, Sweden) are exempt and can register directly. Step 3: Register in the VAT Register You cannot register until you hit the NOK 50,000 threshold (unless applying for "pre-registration" based on large initial investments). Apply via Skatteetaten (Norwegian Tax Administration) using your organization number. Step 4: Post-Registration Compliance You must add the letters "MVA" after your organization number on all invoices. If you reached the threshold mid-invoice, you must go back and "post-invoice" the VAT for the transaction that pushed you over the limit. The VOEC Scheme (E-Commerce Simplified) The VAT On E-Commerce (VOEC) scheme is designed for foreign online sellers (B2C) selling low-value goods or digital services. Key Rules for 2026: Item Limit: Applies to items with a value under NOK 3,000 (excluding shipping/insurance). Exclusions: Does not apply to food, alcohol, tobacco, or restricted goods. Digital Requirement: As of 2026, you must provide your VOEC number digitally to the transporter. Physically writing it on the box is no longer sufficient and may lead to double taxation. VOEC Registration Process: Create an Altinn User: Visit the Skatteetaten VOEC portal and create a user profile without a Norwegian ID number/D-number. Submit Form RF-1291: Provide your home country tax ID and business details. Receive VOEC ID: You will receive a 7-digit identification number within 1–3 working days. Quarterly Filing: Unlike standard VAT (bi-monthly), VOEC returns are filed quarterly (April 20, July 20, October 20, Jan 20). Norway-VAT

Comprehensive guide on automating the end to end VAT compliance and reporting processes including the planning, scoping and risk and control analysis requirements. Introduction The introduction of the Making Tax Digital (MTD) requirements in the UK mandated many organisations to automate or semi automate their VAT compliance processes. The benefits of automation can be significant if it is carried out robustly with strong controls built into the process. Also with e-invoicing on the horizon in the UK and more rapid developments in this field in Europe, South America and Asia, VAT automation has become almost impossible to avoid or delay. Benefits of Automation Elimination of Spreadsheets that usually cause errors Elimination of the manual VAT return Automated VAT liability determination Immediate VAT Analytics Elimination of bottlenecks in the VAT return completion cycle Elimination or reduction in human intervention thus reducing errors Prompts an organisation to undertake a complete integrity review of systems and VAT coding etc to ensure accuracy is built into MTD Reduction in VAT Risk if undertaking thoroughly Automation of the Partial Exemption and VAT recovery process and significantly reducing the time and effort usually embedded in the VAT return process Opportunity to map out and document system and workflow data lineage Reduction in Error Correction Notices submitted to HMRC Enables the possible outsourcing of the VAT Compliance function and resources to be focused on specialist VAT advisory Closer integration with Finance Improved transparency and relationship with HMRC Improved management reporting by instant understanding of areas of the business that are consuming VAT Improved P&L VAT forecasting and Reporting Facilitates quicker impact assessments for new products and changes in legislation Integration of static data such as VAT Rates, Client country of Operation /residence, exchange rates, VAT Group, Non VAT Group company markers, Enables the development and build of a central Tax Data Hub which ingests, churns, organises and transforms data from various systems and sources in to a VAT Return Use of built in exception reports to detect and correct errors real time before the submission of the VAT Return Disadvantages of Autom ation Can actually create more bottlenecks and slow the VAT reporting process down if automation is not end to end and lacks inbuilt controls Can lead to lack of transparency over processes that were more visible using manual processes Can impact VAT P&L reporting if analytical reports and tools are not built into the automated process Due to lack of detailed information that would normally appear on spreadsheets there can be an over reliance on automation and assume the data is always correct. How to Go About Automating the VAT Compliance Process Larger more Complex Entities The amount of effort and work that will be required to automate the compliance and reporting process will directly depend on: The existing level of automation The number of different systems in use for VAT reporting The size and complexity of the organisation The complexity of the Partial Exemption Method The number of manual processes and adjustments required for VAT reporting The method of automating the process internal IT department or External consultants Number of externally supplied systems used The existing skill set of IT, VAT and Finance staff within the organisation Step One - Planning and Budgeting The first action point for any compliance automation will be to draw up a project plan detailing: The design of the automated process - what is it expected to look like and how it will work in practice Key project timelines and expected delivery dates for each stage of completion Key personnel and what parts of the project they are responsible for List of controls that are required to ensure the integrity of the data and to protect any sensitive customer data Any external software or systems being used and details of when and how they will be engaged in the automation process Any pinch points such as any project overlap with key BAU reporting time frames Budgets for the cost of implementation at each stage Key business area / management sign-offs required at each stage Software that will be used to automate the process and any licencing required The future cost savings and efficiencies to be derived from automation Testing process and expected dates List of systems, data sources, software, that will need to be reviewed (see next step) List of static data / sources in use that will need to be incorporated Step Two - Draw up a list of Processes and Systems The second stage of automating the VAT compliance process will be to carry out an inventory of the systems and processes used in the VAT compliance and reporting process. Typically this will include: Ac counts receivable systems used to invoice / bill clients and record sales and Accounts payable systems used to process invoices, record costs and VAT Systems used for e invoicing or in conjunction with Systems used purely to record transactions that then feed accounts receivable and payable systems System to system interfaces Cost allocation systems that are used to carry out complex cost allocations in large organisations Exception reporting systems that feel from any of the above systems Any other manual systems or processes used in the VAT reporting and compliance process From the full list of systems, it will then be necessary to categorize the systems into in-scope and outside scope of automation. Often you can have front end bespoke systems that feed into larger main systems and as such including them all would mean duplicating the data. Therefore in such situations, it is necessary to extract the data for automation from the main system and thus reduce the number of data sources. For example there could be 4 bespoke billing systems that all interface into SAP and as such it maybe possible to extract all the required data for automation from SAP instead of from all the individual systems. So as part of the scoping exercise, 4 systems could be categorized as outside the scope for automation with only SAP being in scope for extracting data for the automation process. Step Three - Carry out and Integrity Review of the Systems for VAT Reporting At this point in the process, it can be a good opportunity to conduct a review of the VAT reporting (including legacy VAT Reports) and controls in each system to ensure that VAT is being booked and reported accurately. This will usually only be necessary if there has not been a regular or recent review. This is a crucial step as the automated process will need to be tested and signed off for accuracy. In larger organisations, the Internal Audit department may want to review the end to end automated process and as such having done a full integrity review may provide them with comfort. Step Four - Identify the Key Mandatory Fields Required from Each System The ultimate objective of any VAT reporting system is to ensure that accurate VAT returns are generated and ready for filing to HMRC. Therefore it is imperative that the key fields available in each system are incorporated into the automation process to ensure this objective is met. Examples of these are: Invoice Amount Gross, Net and VAT Invoice / transaction date Details of the transaction VAT code applied to the transaction Customer type (business / consumer) Customer country of operation / residence Product type VAT classification code SR, ZR, Exempt Customer Id Transaction Id Step Five - Identify all the Manual Adjustments that are Carried Out It is often the case that there are many manual calculations and adjustments that are carried out as part of the VAT reporting process and these need to be identified so as to eliminate and build into the automated reporting process. Making Tax Digital requires digital linking so eliminating manual processes will help to ensure compliance. Step Six - Identify any Static Data that is Consumed as Part of the VAT Reporting Process Often in manual VAT reporting Processes where spreadsheets are used there will typically be static data such as FX rates, VAT rates, customer location data, VAT recovery percentages, VAT allocation percentages, profit / cost centres etc that form part of the VAT calculations. Step Seven - Build a Central VAT Data Warehouse or Hub Once all of the systems, data sources and manual processes and static data have been identified and categorised into in-scope / out of scope, then it will be necessary to build a VAT Data Warehouse or Hub to Extract and Ingest, Store and Transform the data into a VAT return ready for filing to HMRC. This element of the project will be the job of either internal or external IT specialists who can build the necessary code to ingest and transform all of the data into an accurate electronic VAT Return. Additionally static data tables can be built into the VAT Data Warehouse via links. For Example links to HMRC exchange rates or links to client on-boarding static data systems. Data Analytics tools such as Alteryx, Tableau, Power BI, SAP Agile or RPA "Robotic Process Automation" software can assist in transforming data and also adding robotics to replicate tasks normally carried out by humans but without the risk of manual errors. Also where the organisations Partial Exemption Method is complex, it may be necessary to build an automated VAT Sector allocation and VAT recovery calculation engine within the VAT Data Warehouse or bolt on a bespoke system build by an external vendor to allocate and calculate input VAT recovery for different areas of the business. (Anaplan for Example) Note: Testing of the systems should be conducted once built to ensure it meets the objectives set. Step Eight - Linking System Data, Static Data to the VAT Data Warehouse Once all of the system reports, data sources, and static data requirements have been identified, it will be necessary for Tax, Finance, IT and external system vendors, external IT consultants to work collaboratively to link the data to the VAT Data Warehouse in the correct format ready for transforming and calculating the final VAT return. This will normally be done using Application Programming Interface (API's). Note: Testing of the links should be conducted once built to ensure they transfer the data as required. Step Nine - Filing the Automated Electronic VAT Return to HMRC The electronic filing of the VAT Return to HMRC will be the next process to automate. This can either be carried out using bridging software provided by a software provider where figures from the VAT return are linked to the software providers E filer and then onward transmitted to HMRC or the whole filing process can be managed by an external company where they can build a link to the organisations VAT Data Warehouse and the whole VAT reporting, sign-off, partial exemption VAT calculation, MI reporting and filing to HMRC will be managed by the organisation using the software provided. Note: Again testing should be carried out to ensure the VAT Returns file correctly. Step Ten - Post VAT Return Management Information The final leg of the automation (if not already built) would be to build a VAT reporting MI function that enables key reports to be generated from the data. These reports would be used in reporting key metrics to management such as: Total Output VAT per Function / Sector Total Input VAT per Function / Sector Total VAT by Cost Type (which areas are consuming VAT) Total VAT recovery by Function / Sector (E.g. Banking, Equities, Fixed Income, Credit) or ( Hotels, Bars, Restaurants, Cafes, Convenience stores) VAT recovery by Subsidiary, Branch Irrecoverable VAT by Sector, entity, region Reverse Charge VAT by sector / entity Variance analysis and charts comparing month on month, quarter on quarter, year on year VAT recovery rates aligned to each sectors VAT pool VAT allocation drivers Fully recoverable VAT by sector / function / entity Other The greater the detail and clarity of the reports, the more beneficial they will be for management reporting. Automation for Smaller Entities The digitalisation and automation of smaller entities is less likely to involve the internal build of bespoke systems and more likely to involve smaller firms buying and using off the shelf Accounting and Taxation Software which can be purely cloud based. These packages will have all the necessary accounting, VAT, Tax and reporting functionalities built in to enable businesses to become automated and digitalised relatively quickly without any major need for internal software or systems development. Mainstream software providers such as Sage, Zero, IRIS, Quickbooks just to name a few can be purchased and used by either business owners or their Accountants for accounting, VAT and general Tax reporting. That said, the automation of VAT Compliance and Reporting for smaller entities can be completely bespoke and built by IT specialists to the specifications and requirements of the business. Many of the steps (above) that may be used by larger entities can be used for smaller entities. VAT Automation - VAT Compliance Automation

Comprehensive guide on Canada GST, PST and HST and how it is applied in Canada including registration thresholds, who is required to register and rates for GST, PST & HST by province. Canada GST Guide - Comprehensive guide for GST in Canada Introduction T he Canadian Tax Authority is know as the Canada Revenue Agency (CRA) and is responsible for administering General Sales Tax (GST) and Harmonized Sale Tax (HST). The Federal GST rate of 5% is applicable across all provinces and territories and where a province has what is known as a Provincial Sales Tax (PST) and it is combined with GST, then this is known as Harmonized Sales Tax (HST). However some provinces have a separate Provincial Sale Tax (PST) that is levied alongside GST. General Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes levied on most property and services in Canada. G ST / HST Rates Provinces with 5% GST Alberta British Columbia + 7% PST Manitoba + 7% PST Northwest Territories Nunavut Quebec Saskatchewan + 6% PST Yukon Provinces with HST 13% (HST) in Ontario 14% (HST) in Nova Scotia 15% (HST) in New Brunswick 15% (HST) in Newfoundland and Labrador 15% (HST) in Prince Edward Island When Do you Have to Register for GST / HST Businesses - who's total worldwide taxable supplies (including zero rated supplies) are above CAD $30,000 (CAD $50,000 for public service bodies) in a single calendar quarter or in total over the last 4 consecutive calendar quarters or less (but not in a single calendar quarter) will be required to register for Goods and Services Tax (GST) / Harmonized Sales Tax (HST). Worldwide Taxable supplies should exclude revenues from supplies of Financial Services, Sales of Capital Property and goodwill from the sale of a business. Note: Voluntary Registration is also allowed where businesses (small suppliers) do not exceed this threshold but wish to claim GST / HST input tax credits from the CRA on purchases they have made such as: Business start-up costs Business-use-of-home expenses Delivery and freight charges Fuel costs Legal, accounting, and other professional fees Maintenance and repairs Meals and entertainment (allowable part only) Motor vehicle expenses Office expenses Rent Telephone and utilities Travel Charities and Public Institutions - will also be considered as small suppliers if they meet the CRA's gross revenue test of $250,000 or less. For more information on what constitutes a charity or public institution, please see the link to the CRA website GST/HST Memorandum 2-2, Small suppliers . Taxi Operators / Commercial Ride Sharing Driver - Self-employed taxi drivers or commercial ride-sharing drivers, have to register for the GST/HST even if they are a small suppliers and the effective date of registration is the day they start supplying taxable passenger transportation services. Non Resident Businesses - that do not have a permanent establishment (fixed place of business) in Canada may be required to register for GST / HST if they: Make supplies of Cross-border digital products and services Make supplies of Goods located in Canada Make supplies of Platform-Based Short-Term Accommodation Make supplies of Taxable goods or services, leases, or other supplies (including zero-rated supplies) in Canada in the course of carrying on business activity in Canada. Make supplies of Books, newspapers, magazines, periodicals, or similar printed publications in Canada or you offer such goods for sale in Canada, either through an employee or agent, or by means of advertising directed at the Canadian market, and send the publications by mail or courier to the recipient at an address in Canada. Sponsor (host) a convention in Canada and more than 25% of the attendees are residents of Canada. (Mandatory registration for GST / HST) Make taxable sales, leases, or other supplies (including zero-rated supplies) of admissions in Canada for a place of amusement, a seminar, an activity, or an event held in Canada. (Mandatory registration for GST / HST) Source CRA Effective Date of GST / HST Registration The effective date of registration is the day of the supply that made a business exceed $30,000 and GST / HST must be applied to that supply. Mandatory Electronic Filing of GST / HST Returns From 2024, all Businesses registered for GST / HST are required to file their returns electronically unless they are: A Charity Selected Listed Financial Institutions Other useful links can be found on the CRA website below Building and Construction GST / HST Builders and construction Non Resident Digital Platform Businesses GST / HST Non-resident digital-economy businesses Listed Financial Institutions GST / HST GST/HST Notice 265, GST/HST Registration for Listed Financial Institutions (including Selected Listed Financial Institutions) .

Place of Supply Rules Introduction The place of supply rules are an important aspect of VAT as they determine if a supply takes place within or outside the UK and as such whether VAT applies to a supply or not. Place of supply of Goods Goods supplied to customers in the UK and remain in the UK are subject to UK VAT. This includes goods purchased from a supplier who assembles them and they are not removed from the UK. Goods supplied to overseas customers where the goods are removed or assembled outside the UK are outside the scope of UK VAT Place of supply of Services The place of supply of services primarily depends on what service is being supplied and whether the supply is to a Business Customer (B2B) or a Private Individual (B2C) . General Rules The general rules as per the VAT Act 1994 for (B2B) and (B2C) are as follows: The place of supply for Business to Business supplies (B2B) is where the customer belongs The place of supply for Business to Customer (private individuals, charities or government organisations) supplies (B2C) is where the supplier belongs unless the services are specified supplies such as accountancy, financial and insurance, consultants, lawyers, engineers, supply of staff, banking, provision of information, data processing etc. Specific Business to Consumer (B2C)services such as transfers and assignments of copyright, patents, licences, trademarks and similar rights, acceptance of any obligation to refrain from pursuing or exercising a business activity, advertising services, services of consultants, engineers, consultancy bureaux, lawyers, accountants, and other similar services — data processing and provision of information, other than any services relating to land, banking, financial and insurance services, the provision of access to, or transmission or distribution through, natural gas and electricity systems and heat or cooling networks and the provision of other directly linked services, supply of staff, letting on hire of goods other than means of transport, emissions allowances are also supplied where the customer belongs. Such services supplied to non UK customers are outside the scope of VAT and are thus Zero Rated. Services Supplied in UK to UK Customer Taxable services supplied by UK VAT Registered Businesses to UK Business Customers (B2B) = VAT Applicable on the Supply Taxable services supplied by UK VAT Registered Businesses to UK resident private individual (B2C) = VAT Applicable on the Supply For example - if a UK business supplies legal services to a private individual in the UK then 20 % VAT would be applicable Services Supplied to a Non - UK Customer Taxable services supplied by UK VAT Registered Businesses to Non UK Business Customers (B2B) = Zero Rated Taxable services supplied by UK VAT Registered Businesses to a Non UK resident private individual (B2C) = Zero Rated B2B - Supplies to Non UK Customers Evidence Where UK businesses are providing services to non UK business customers, they must satisfy themselves that the customer is actually in business. This is normally evidenced primarily by the following: The customer providing a VAT registration number and then verifying via the Vies system if in the customer is in the EU or other local government VAT number checkers. The company having a registration number with their local registrar of companies. Corporation or other local business tax number Note: If a UK business cannot verify that the customer they are supplying is in business, then HMRC requires them to charge 20% VAT on their supply similar to if they were supplying a non UK resident private individual. Basically Treat the supply as a B2C supply. For example if a UK company is supplying accountancy services to a company in Germany but it has received no information such as a VAT registration number or company number or any other evidence to verify that it is actually in business, then the UK company should charge 20% VAT on the supply. B2B - Supplies to Non UK Customers that Make both Business and Non Business Supplies Where a UK business makes supplies to non UK organisations that have both business and non business activities such as charities or Government organisations, then the supply should be treated as B2B and treated as outside the scope of UK VAT / Zero Rated. If on the other hand the charity or Government organisation was only carrying out non business activities, then the supply should be treated as B2C and VAT applied at 20% accordingly. Establishment and the place of Supply The Establishment most closely linked with a supply will usually determine whether or where VAT is applicable. Where an establishment is actually providing the services, this should normally be reflected in the contract. However, where the contract conflicts with the substance and reality of the situation, the supplier should normally be treated as belonging at the establishment from which the services are actually provided. For example if company (A) in Germany contracts with customer (B) in Germany to supply consultancy services to its London Branch (C) and the actual consultancy services are provided by (A's) London registered company then the place of supply will be seen as the UK and as such 20% reverse charge VAT would be applicable as the contract for services is in substance between Company (A) and the London Branch of (B) company (C) Key Indicators for Determining the Establishment Most Closely Linked with a Supply Where are the necessary human and technical resources (for example database, technical equipment, office equipment, telephones, and so on) for actually providing the services permanently based Which establishment appears on the relevant contracts, correspondence and invoices Does reference to the preferred establishment lead to a more appropriate or rational result for tax purposes What is the significance of the activities carried out at each establishment in contributing to the services provided Services where Place of Supply General Rules do not Apply Land and Property Related Services The place of supply of services related to land and buildings is where the actual property is located and not where the supplier belongs This includes: Purchase and sale of Land Estate agents, surveyors, architects, engineers etc involved in land related transactions Hotels and accommodation Construction, alterations, demolition, repairs and maintenance, engineering in relation to land and buildings Admission to Event The place of supply for admission to an event is where the event takes place. By events we mean sporting, conferences, exhibitions, music events etc. For Example - a company in the UK buying tickets to a rugby match held in Ireland to entertain staff. The place of supply in this case is Ireland. Note: The following services provided Are not Admission to an Event and the place of supply of these services is covered under the general rule - B2C = where the supplier is located and B2B where the customer is located. (Unless only the admission is provided which gives the right to attend an event) Sporting event services such as appearances by sports personalities for a fee or organisation of race events or tournaments Educational services such as conferences organised and supplied to businesses. Entertainment services such as performances by artists, DJ's where their services are hired. Exhibitions Hire of Means of Transport The hire of short term transport (30 continuous days for cars, vans, bikes, scooters etc and 90 continuous days for vessels) is to be treated as made in the country in which the means of transport is actually put at the disposal of the person by whom it is hired. So if a van is hired by a UK business from a French van hire company to use while setting up its French office, then UK reverse charge VAT would not be applicable as the place of supply is in France and thus outside the scope of UK VAT. Catering and Restaurant Services The place of supply rules for restaurant and catering services is the country where the actual physical supply takes place. Use and Enjoyment Rules Use and employment rules apply mainly to telecommunications, broadcasting and electronically supplied services. Basically the use and enjoyment for these services take place in the country they are consumed and as such do not follow the general rule. For Example: If a UK business provides telecommunication services to a UK business customer but the actual services are consumed in France, then the place of supply is France and is outside the scope of UK VAT. If a Spanish satellite broadcaster provides broadcasting services to UK consumers, then the place of supply would be where the broadcasts are consumed and thus UK VAT will be applicable. If a UK business purchases software from a Irish vendor and is used in its Jersey office only, then the supply would be outside the scope of UK VAT as the services are consumed in Jersey. If a German company purchased web hosting services from a US company and the web hosting is used primarily in the UK, then as these services are consumed in the UK VAT is applicable. -Contains public sector information licensed under the Open Government Licence v3.0.

Read our comprehensive guide on the VAT liability of supplying staff or labour as a service to either external counterparties or within a VAT group. Introduction The supply of staff occurs when a company provides its employees or directors to another organisation for consideration and the receiving company directs and exercises day to day control over the employee or director while working in their organisation. The key point is that the recipient company does not employ the staff provided but is responsible for their day to day direction in carrying out whatever work is required. The VAT liability for the supply of staff is as follows: Supply of staff from a UK business to a UK business = Standard Rated 20% Supply of staff from a UK business to a non UK business = Outside the scope of VAT. (Zero Rated) Supply of staff from a non UK Business to a business located in the UK( incl Isle of Man) = Reverse Charge VAT applicable at 20% Consideration for a supply = Value of what you are given in return for providing the required services and VAT must be accounted for on the full amount. Consideration will include the following (received from the recipient company and or paid to the staff member by the recipient company) and VAT should be applied to the sum total of these: Fees for staff provision Salary National Insurance Bonuses Pension contributions Paymaster Servic es Paymaster services occurs where there a number of associated companies that employ their own staff but one company has the role of paying the salaries and expenses to all the employees of each company. The recovery of the salaries and expenses by the paymaster company from the other companies is not a supply of staff and is outside the scope of VAT. Where the paymaster charges the other associated companies a fee for acting as paymaster, then this fee is subject to VAT. Supply of Directors The Supply of Directors occurs in the following circumstances and 20% VAT is applicable on any fees charged: Company A supplies a Director or Employee to serve as a Director at Company B for a Fee Company A provides a Director or Employee to serve at a number of associated Companies B, C, D and E. Accountancy Firm A supplies one of its Directors to serve as an accountant at Company B Company A invests and takes a majority stake in company B and appoints one of its Directors to the board to provide day to day specialism in running the target company for a fee Staff Employment Agencies Employment agencies can act as either principal or agent when they are involved is the provision of staff. A company that employs workers under its own contract of services and pays their salary then provides them to another company as a supply of staff = 20% VAT applicable on total charge collected from recipient company. Staff umbrella companies operate in this way. A company that acts a an agent to another company by only finding and introducing staff to that company then this is not a supply of staff but rather an introductory service = 20% VAT applicable on agency fee -Contains public sector information licensed under the Open Government Licence v3.0. Supply of Staff and VAT