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View the related Tax Guidance about Invoice discounting

Exemption ― finance ― dealing in money, credit and debts

Exemption ― finance ― dealing in money, credit and debtsDue to the complex nature of financial services and the number of different types of transactions that are possible, the subject of exempt finance has been covered in a number of guidance notes. This guidance note provides an overview of the VAT treatment of financial services transactions involving dealing in money, credit and debts within the UK. If financial services are provided to customers located in other countries, then the Reverse charge ― buying in services from outside the UK guidance note may be of further assistance. Under VATA 1994, Sch 9, Pt II, Group 5, Item 1, the following supplies are exempt from VAT:‘The issue, transfer or receipt of, or any dealing with, money, any security for money or any note or order for the payment of money.’However, note that under VATA 1994, Sch 8, Pt II, Group 11, Item 1, the issue by a bank of a note payable to the bearer on demand is zero-rated; see De Voil Indirect Tax Service V4.279.The exemption does not cover:•the supply of coins or banknotes as:These supplies are normally liable to VAT on the full selling price, whether or not they are sold for more than their face value. Examples include banknotes, proof coins, Maundy money and precious or base metal coins. However, it may be possible to use the second-hand goods margin scheme for supplies of collectors’ pieces (see the Margin schemes - overview guidance note for more information).

Liability ― credit, debts and related services

Liability ― credit, debts and related servicesThis guidance note covers the liability of credit, debt and related services.For an overview of liability more broadly, see the Liability ― overview guidance note.For in depth commentary on the legislation and case law on the liability of credit, debt and related services see also De Voil Indirect Tax Service V4.136B.Granting and managing creditVAT exemption applies to the service of granting credit and making advances. Examples of exempt activities include advancing loans and providing overdraft facilities. Exemption can also extend to the provision of credit by a business in connection with goods or services it is supplying. However, for exemption to apply there must be a separate charge for the credit which is disclosed to the recipient of the supply of goods or services. The management of credit by the person granting it is exempt. However, where the management is outsourced to another person exemption does not normally apply (although see further below). Granting creditThe UK VAT legislation provides for exemption for the ‘making of any advance or the granting of any credit’. This means that where a business supplies credit for a charge, advances money as a loan, provides overdraft facilities, or makes some sort of other advance then this is an exempt supply of credit. Usually (but not always) the charge for credit will be described as interest. The value of the supply is the gross interest or the other sum charged (not the repayment of the capital amount). It is