When reclaiming input tax on purchases, businesses need to ensure that they have considered the
correct liability against their outputs (supplies) as this is the key component in deciding whether or not
an entity can claim VAT back from HMRC.
If a business makes purely exempt supplies (this is not to be confused with 0% supplies) then the entity is not entitled to reclaim any input tax back at all. However, there are certain exempt supplies which have been specified by Treasury Order that are known as ‘foreign and specified supplies’ which go against the normal rule.
Any entity that makes such supplies under this order has the right to deduct input tax, whilst still being an exempt supply. The particular part of this Order which is of interest is as follows, “…you can recover input tax relating to: …financial services supplied to persons belonging outside the member states (i.e. the EU) or directly related to an export of goods.’
Rishi Sunak confirmed earlier this month that the rules regarding specified supplies of financial services and insurance will continue to apply post-1st January 2021 when being made to customers outside of the UK (whereas it currently applies outside of the EU). This allows UK companies with such dealings to recover VAT incurred against such supplies.
Therefore, any businesses currently making such exempt supplies to EU customers should review the impact this shall have post-1st January 2021 on their partial exemption calculations. If you need further advice or assistance, please speak with your usual Rickard Luckin contact or email email@example.com
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