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VAT and Financial Services Brexit Update

  • United Kingdom
  • Brexit
  • Financial services and markets regulation
  • Tax planning and consultancy

25-02-2019

The UK has made changes to its VAT system to allow continuity of the VAT system if there is a no deal Brexit.

The EU VAT system allows financial services providers the benefit of input tax deduction on the VAT cost of buying in goods and services which are used by to make supplies of certain financial services to customers outside the EU.

The UK law is currently EU law compliant. However, without changes to the UK law, if the UK were to leave the EU without any agreement on 29 March, because of the way the current UK law is drafted, it would effectively allow input tax deduction in relation to supplies of exempt financial services within the UK, rather than only supplies outside the “member states”. This would effectively zero-rate financial services. The change in the law, if no deal, is agreed will maintain the status quo, so that the benefit will only accrue for input VAT used to make supplies of financial services outside the UK and the EU member states.

This means that supplies by financial services providers to EU customers will not, for now at least, benefit from input tax recovery. The UK may announce changes to this in due course, depending upon the nature of any post Brexit agreement and trade deal with the EU.

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