As the Brexit transition period comes to an end on 31 December 2020, the UK’s financial services sector has been granted a VAT boost. The Chancellor, Rishi Sunak, has confirmed that input VAT incurred on banking or insurance services as export services will be deductible.
The UK leaves the EU VAT regime after 31 December 2020, the end of the Brexit transition period. This will leave the UK free to change the VAT rules, and vary from the EU’s VAT Directive exemption for VAT – meaning not VAT due, but no right to deduct VAT.
U.K. businesses providing certain financial services will benefit from increased VAT recovery under an extension of the ‘specified supplies’ rules. At the moment, these rules only apply when a U.K. business is providing certain services to non-EU customers; from 2021, the ‘specified supplies’ rules are being extended to include sales to non-U.K. customers.
The UK measure will give a tax subsidy to the import UK sector. This comes at a time with the UK has lost its Financial Services ‘passporting rights’ into the EU market, and will likely not win ‘equivalence’ with EU rules. That means a loss of direct rights to sell into the EU.