Currently, certain financial services allow for VAT registration and associated VAT recovery (effectively zero rating) where such services are provided from the UK to non-EU counterparties. One of the most important issues for the financial services sector has been whether, post-Brexit, the VAT recovery position will be maintained, extended to supplies made to EU counterparties, or restricted.
In the event of a no deal:
HMRC has now laid new regulations and confirmed UK government policy on this issue. If the UK exits without a deal, relevant financial supplies (and supplies of goods) to EU and non-EU counterparties will be effectively zero-rated (i.e. VAT recovery will be extended to supplies to EU counterparties).
If we leave with a deal:
It has now been made clear that in the event of the UK and EU brokering a deal, the current recovery position would be maintained. This gives some certainty on the VAT recovery position for the different Brexit outcomes. However, there will be consequential amendments made to the VAT partial exemption recovery rules which may throw up issues regarding costs incurred now whilst supplies to EU counterparties are exempt, but which are then used ultimately for zero-rated supplies.
So what do you need to do?
For the time being, it’s a waiting game. We recommend you prepare your business for both possible outcomes. We will keep you updated on further changes and let you know if there is anything more you can do. For more information about previous regulatory changes, check out our other articles. As always if you need further advice, please don’t hesitate to get in touch.
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