MAH, Chartered Accountants

Tag: VAT

  • VAT and financial services

    VAT and financial services:

    Are you losing out on VAT?

    VAT and financial services is a very tricky area and this video presentation gives a brief overview:

    https://www.youtube.com/watch?v=IaYzGej4p0c

    The main points covered are:

    1) VAT and financial services exemptions under VAT Act 1994 Schedule 9 Group 5 (eg money, loans, securities, advising collective investment scheme)

    If a firm is making exempt sales, then it doesn’t have to pay any VAT on income to HMRC, however it also cannot reclaim VAT on its expenses.

    2) Standard rated items, mainly looking investment management/advisory. If  a firm is providing advice or is using its discretion to manage investments or funds and isn’t merely executing transactions according to clients’ instructions, then these services are taxable at 20%. Either the client has to pay an extra 20%, of the firm has to take a hit of 20% on its fees.

    This may be avoided by carefully structuring the services with an SPV so that the investment manager has an interest in the trading profits of the fund, as a principal. Therefore, its share of profits would be exempt.

    If the investment manager is an external entity providing services as an agent, then even if its consideration is contingent eg 20% of trading profit if hurdles met etc, then they would still be subject to VAT

    3) The place of supply rules need to be checked. If the client is located outside of the UK, then the sales may be outside the scope of VAT. In this case, no VAT is due on sales and the firm may be able to reclaim VAT on its expenses if the sales would normally have been subject to VAT if supplied in the UK.

    Contact us

    This is a brief summary. VAT and financial services is a very complex area and we can discuss your circumstances and look at your contracts, as well as the legislation and VAT cases to design a VAT strategy. Please contact us for a free, no obligation consultation to discuss your requirements. Our base at Liverpool Street is within easy reach of the City, Canary Wharf or Mayfair or we could also visit you at your offices.

  • VAT on Bitcoins

    VAT on Bitcoins

    see here for latest HMRC guidance on Bitcoins.

    http://www.hmrc.gov.uk/briefs/vat/brief0914.htm

    The post below was written before their guidance was published:

     

     

    VAT on Bitcoins

    Download the full report here

    There has been a lot of uncertainty regarding the treatment of VAT on Bitcoins and other cryptographic currencies. This uncertainty has led to a VAT risk as individuals and businesses are not sure of what their VAT liability, if any, could be from being involved in transactions with Bitcoins and cryptographic currencies.

    This report sets out to explore the various VAT issues surrounding the Bitcoin ecosystem, apart from whether or not Bitcoins could be classified as “money” or “currency” for VAT purposes, as this is still a work-in-progress.

    We have not identified any significant differences between the different crypto coins for VAT purposes.

    Are Bitcoins face-value vouchers or something else?

    HMRC appears to have classified Bitcoins “face-value vouchers” which may be single purpose.

    There may not appear to be any basis for this as demonstrated in the full report.

    However, Bitcoins could still be classed as digital commodities (software) or non-face value vouchers, in which case VAT would still be chargeable. This is unless an exemption can be found for them.

    Bitcoins do not appear to be Electronic Money as defined by EU Electronic Money Directive Directive 2009/110/EC.

    The ideal scenario would be if Bitcoins were classified as “money” or “currency” as these are exempt. Although VATA 1994 doesn’t define money, the EU Sixth Directive does make mention of legal tender. However, this is something which we are exploring in case there is any legal precedent to allow Bitcoins to fall within the exemptions.

    If there’s VAT on Bitcoins, how should people deal with VAT

    If merchants accept Bitcoins as payment for goods and services, then they would need to account for VAT on their services as normal. The amount is likely to be the market value of Bitcoins as at the tax point.

    However, it may be possible for merchants to avoid VAT on Bitcoins when exchanging for legal tender, as they would be used as consideration for a VAT exempt item (money).

    Miners, investor/traders and exchanges selling Bitcoins may need to account for VAT at 20% if they are supplying taxable supplies in the course of business. This will need to be looked at on a case by case basis, and there are 6 key tests.

    Donations received in Bitcoins may be able to avoid attracting VAT if they are freely given without expectation of goods or services in return, and not in the course of business.

    Is there VAT on Bitcoins if customers are located overseas?

    Bitcoins are likely to be classified as electronically supplied services in the absence of any exemptions and the special place of supply rules would apply for a UK supplier:

    business customer overseas: supply occurs in their country and not subject to UK VAT.
    consumer in EU: supply occurs in UK and subject to VAT
    consumer outside EU: supply occurs outside EU and not subject to VAT.

    Download the full report here