If you run a VAT-registered business with a turnover rate of at least £85,000 in total, then you need to pay VAT on most goods and services you purchase within the UK. At a standard rate of 20%, this can be quite a substantial charge – but it does not apply in every case.
While some goods and services relating to particular parts of your life may be exempt from VAT, the majority of payments that you make will require VAT. However, VAT itself can be quite complicated, and you will not always have VAT charged with particular payments or transactions.
Are bank charges VATable? Can you try claiming VAT on what your banks charge? How does having to pay VAT interfere with things like savings accounts? This is all useful information to know, and the details below will explain the specifics.
VAT is not handled the same way in each country. Even within the UK, there may be differences in how you are paying VAT based on the context of the VAT charge itself. One of these instances involves whether or not banks charge VAT.
In the UK, you do not need to pay tax on bank charges. This means that your bank’s charge transactions are exempt from VAT.
This means that HMRC will not warn you to pay VAT on bank services but also locks you out of claiming a refund or relief from HMRC relating to your bank charges.
There can be one major situation in the UK where the question of “are bank charges VATable?” can be answered with a “yes”.
In some situations, your VAT return may include bank charges if they were connected to things like financial certificates being issued or special overprinting costs.
For the average person, this will not mean all that much; it is important to understand either way.
In almost all cases, bank transfer fees are handled as internal bank charges within the UK. Such charges are considered fully internal, so they will not usually appear on VAT returns.
Remember that this may not apply overseas. International bank services may fall under special rules, especially if you are moving money between bank accounts in completely different countries.
Within the UK, no bank charges are usually listed on your tax return. Even if you are moving money between banks, the minimal fee required for some transactions will not be listed on your VAT return.
Outside of the UK (and especially between banks in different countries), this becomes a lot harder to judge. Depending on the countries in question and their systems for handling VAT, the charges for trying to transfer money between countries could involve VAT.
In general, bank charges are not VATable because of the actual payment itself. VAT typically applies to payments for goods and services, but bank charges are not a direct payment for anything.
Since banks are not delivering any goods to customers, bank charges are not considered VATable outside of very specific circumstances. Even then, a typical bank payment charge will still be exempt from VAT.
Despite all of the details above, there are actually a lot of bank charges that can be included in your VAT return – usually because they go beyond standard bank services and have additional costs involved.
The following services are situations where you would potentially have to pay tax, usually because they involve a physical item or larger-scale service than just a funds transfer. These fall under the standard rate and are treated like any regular business service.
Are bank charges VATable if they relate to advice? Yes, surprisingly. A bank can charge VAT if they provide advice for investments and general finance, including taxation advice.
This means that your bank charges for things like tax services or investment help may include VAT. This is especially important for something like taxation advice since both individual people and businesses may rely on banks to simplify their tax returns.
If a bank is managing your portfolio, then they are providing direct financial services. This means that they can charge VAT, even if they are sticking to a minimal fee.
This can apply to any tier of portfolio management, from the most basic of tasks to full-scale portfolio work. As long as the bank is offering its expertise as a service, it may be able to charge you VAT at the standard rate.
Note that simply using the bank to transfer funds around for portfolio reasons won’t lead to it being VATable. VAT mostly applies when the bank itself is giving you a specialised good or service.
Any kind of depository and trustee services can be subject to VAT. This will generally only apply to investors, so you do not need to worry about this unless you are actively investing through the bank.
Any of the service companies’ activities that apply to your situation (such as administration or automatic payment of salaries and wages) can come with VAT. Again, this is because the bank is providing an actual service to you rather than simply allowing you to transfer and store money.
These are mostly going to be business and finance services that you have to arrange with the bank. Standard services should all be exempt, but bespoke administration work will not be exempt since you are paying the business a fee to provide services to your own business.
Bookkeeping services are one of many services that customers may opt into if they pay the fee, and that makes them another set of services that banks can charge tax on.
Relying on a bank to manage bookkeeping means that you will be paying VAT, so be sure to account for that if you are using a bank’s extra financial services.
Like bookkeeping services, debt collection also falls under the category of an outsourced service that banks charge VAT for. Like any bank service that requires a separate fee, you should expect the standard VAT rate on any charges involved.
Remember that this applies to any fees paid by you for the service. While debt collection can lead to a lot of money moving back and forth, the only VAT you need to worry about is the VAT related to your payment for those services.
Any bank organisations that provide or facilitate equipment leases (vat on vans) will also have VAT added to their bank charges. This is the most obvious case where these bank charges would be connected to your VAT returns since the services obviously involve goods being provided in the short term.
The expenses of equipment leasing require you to pay tax (as long as you qualify for VAT), but those fees can also be used to claim VAT relief if needed. This will always be under the standard rate unless you qualify for a reduced rate or an exemption.
Remember that equipment leasing arrangements can have a lot of different specific details and quirks behind them. Certain banks may have rules about how equipment can be used, with additional payments if those terms are broken – which can still sometimes be subject to VAT.
As mentioned earlier, any kind of advice for major legal work or financial transactions can fall under VATable services. This includes merger and take-over advice, which are often provided as major financial services to help companies manage these sweeping changes.
In most cases, any form of fee-based professional advice can be encompassed by VAT, and that includes this kind of specialist support. This can include a range of direct support with a merger, too, such as outsourcing part of the planning work to the bank or one of its representatives.
If you are getting registrar services from the bank, then you may end up paying VAT on them. Registrar services relate to births, deaths, marriages and civil partnerships, as well as a range of other record information, making their special services quite specific but very important.
Executors manage a deceased person’s estate, while a trust arrangement allows somebody to hold a property to later benefit the beneficiaries. Both of these are essentially bespoke financial services that require a lot of legal expertise and planning to get right.
As such, you can expect to pay VAT for this kind of service. While these services are different ways of approaching the same problem, they are basically identical for VAT purposes – you are paying for legal and financial services.
Remember to look at the specifics of executor and trustee services so that you know whether VAT will apply to them. While trustee services and executor services are not usually exempt from VAT, it is still important to double-check just in case.
Any kind of safe transportation services and safe custody can fall under VAT. Again, since safe transportation services are a distinct service that you would be paying a fee for, they are able to have VAT applied to them.
Unlike many service companies’ activities, transportation can technically fall under goods and services since vehicles and secure storage equipment may also be provided to you like a lease.
Consultancy is similar to advice, meaning that it is yet another service that you may end up paying VAT on. Management can involve quite a long list of different topics and tasks – but if you pay for a service like this, regardless of the context, then it will likely be subject to VAT.
By now, you probably see the recurring theme with these extra services. VAT charges are based on a service being paid for, and such charges can’t apply to regular bank transactions because the charges are simply part of the process rather than an added fee.
However, with things like debt collection, that exemption is gone. You are paying a fee for a service that directly impacts your business, providing some benefit to your business and/or outsourcing some of your work to the bank.
Most cases of an outsourced service will be subject to VAT, from estates investment advice to cash accounting services. Even something as simple as having your cheque books balanced can fall under expenses that require VAT to be paid by UK customers
In general, if you are paying a fee for standalone services, then expect to pay VAT for them. Such charges are usually handled like services would be from any business, even if they come from a bank or another major organisation.
You only need to pay VAT on these kinds of bank charges if you are actually required to pay VAT. If bank charges appear on your VAT return, but you do not earn enough to pay VAT, then those bank charges will not require VAT to be paid.
Bank charges relating to these financial services usually lead to a partial exemption – the main bank services of transferring funds are tax-free, but there is VAT added to other financial services like the ones listed above.
Just like paying for goods sold to you, you do not have to pay VAT tax if you are not currently qualifying to pay VAT. If a customer does not meet the UK tax threshold, then that customer does not pay tax on their expenses, including things like safe custody bank charges.
While the answer to “are bank charges VATable in the UK?” is a solid “no”, are bank charges VATable in other parts of the world?
The real issue with this question is that different countries approach VAT differently, and many bank organisations operate across multiple territories in ways that can make this issue even more confusing.
For example, you might end up paying VAT on financial transactions between bank accounts in two specific countries but not have to pay VAT on the same kind of financial transactions and bank services in two different countries.
If your business buys services from outside the UK’s borders, then the ‘reserve charge’ applies. This follows a specific formula that takes your current tax requirements into account.
The system involves the business charging itself the VAT tax, putting it on the same level as if it had purchased those suppliers and services from a UK company that would be subject to regular tax rates.
This charge puts your business in the same position as you would be through bank charges and payments made within the UK. This matters if you are getting services from a bank overseas or working with companies abroad as a whole.
This is generally meant to simplify VAT and tax by cancelling out the VAT itself unless you are already exempt from paying tax. Note that selling services to non-business customers will require that you charge VAT as normal.
The charge is implemented differently in every country and is used to prevent fraud. It can be complex and often requires a lot of further details to get right, but it shows that VAT is still considered with bank charges overseas.
If you want an overall summary of how VAT and tax work in regard to your bank, it is not actually that difficult. The most important thing is to understand that a bank is treated like any other regular business rather than being seen as something separate for tax reasons.
If you are using a bank to move money around, you pay no VAT tax on that money. The bank charges being made are purely to facilitate the money being moved – even if you pay a withdrawal fee, you are not receiving anything other than the money you already own.
There are a few general rules to follow if you are not sure how tax applies to your bank charges, so make sure that you understand what to look out for. When it comes to tax and VAT, it is very easy to over-complicate things when they are actually quite easy to explain.
You do not have to pay VAT on standard bank charges, like those from moving money around. The bank’s regular services are generally completely disconnected from VAT liabilities, so you do not pay tax on choosing to transfer funds around.
This means that you can, as a customer, transfer funds through your bank accounts without making VAT tax payments on each transfer attempt. Your funds are being held by the bank, but the bank is not providing a service that you are paying for, so there is no need to tax your funds (or the bank charges).
Extra services and expenses tend to be the part where tax and VAT apply most. If you are paying fees for something, then the value of that fee usually requires VAT to be added to it (as long as you qualify to pay VAT).
For example, take-over advice is a specialised service that you are paying a fee for. While you are not receiving a physical product, you are still paying for something, so the payments for that service have VAT applied to them.
This means that you will pay tax on any payments relating to these services unless you are otherwise exempt. This can be things like finance advice, assistance with managing loans, secure transport options, or a range of other finance and legal services.
If your bank charges are fees being paid for a service, then you can both pay and claim VAT relief from them. After all, paying value-added tax on something also means that you can reclaim VAT from it, allowing you to claim VAT relief and benefits from these financial transactions too.
Choosing to reclaim VAT from bank charges is not always an option, but it can be something worth investigating if you are relying on financial services like this.
If you are paying for financial services, then VAT and tax returns apply to them. As mentioned before, it is all about paying for something – UK law means that VAT will generally only apply to expenses that give you a product or service in return.
For example, VAT will apply to the value of expenses like third-party services or financial advice. However, basic bank functions are exempt.
Generally, you want to record all the information about payments like this. While a bank will have its own record, it can be a good idea to take stock of all the texts and specific emails related to these services unless the services (or you yourself) are exempt from VAT.
Filling out tax returns means including all the information necessary to provide a clear picture of each note payable and your past transactions. If you have an outstanding note payable for certain financial services, be sure to include at least basic information about it.
While incorporating all the texts and emails into official records is not actually needed, tax returns and VAT can be complex. If you are not sure which services are exempt or do not know your own exempt status, then keeping track of these conversations and receipts can be important.
In a normal situation no, bank charges do not require VAT.
While the information above may seem incredibly confusing and overwhelming, remember that the majority of basic bank charges are purely to make the bank function. VAT and input tax are not needed for a lot of basic day-to-day bank duties.
What does matter is actual transactions, such as purchasing financial certificates or paying fees for professional advice. By actually paying for something, you open it up to being connected to VAT.
If you do not pay VAT, then you do not need to add VAT to the cost of any of these services. However, most people who are using bank services like this will probably be earning enough to slip over this threshold.
Remember that the VAT threshold cost of £85,000 applies regardless of whether or not you actually want it to. Be sure that you know whether or not you are brushing up against that threshold.
Bank loans do not need to include VAT. This is because they are financial services.
Loans do not inherently fall under VAT since a bank is not actually providing a good or service beyond an exchange of money with specific rules behind it.
This means that you do not have to worry about input tax when dealing with loans since standard loans should not include VAT as a whole.
This may not apply to equipment and vehicle loans, depending on how they are approached, so keep this in mind if you are wanting to loan something specific.
With VAT, there are a lot of different terms and confusing statements that can make it seem very complex. However, in general, you just need to remember that VAT applies to purchases where you pay a fee to gain something of value.
As mentioned throughout this article, direct services that benefit you are going to fall under VAT requirements. They cost money, but you get something in return beyond the absolute basics of what a bank can provide.
On the other hand, things like owning a bank account or getting a loan are not the same. You do not actually get anything directly and are instead just exchanging money. This means that VAT generally will not apply.
Do not stress yourself over VAT too much. The rules behind it are mostly quite simple, and the standard rate is consistent. All that matters is working out when and if you are required to pay it.
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