Are Bank Charges VATable?

Are bank charges VATable

Are bank charges VATable in the United Kingdom? If this question confuses you when making tax returns, then we have covered you. Sometimes, employers get confused about the VAT when the bank charges them a fee for providing their services. Bank charges can vary from country and country. Similarly, the Value Added Tax (VAT) rates might differ in various countries. This makes the game of claiming VAT somewhat tricky for employers or business organisations.

In this blog, we will help you with bank charges and the VAT applicable to them. Moreover, we will discuss the HMRC rules for the application of VAT on bank charges. So, let’s dive into this exciting discussion!


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What are Bank Charges?

Bank charges are the fees banks charge for providing their financial services to individuals. For example, banks charge a minimal fee for the maintenance of bank accounts, facilitating the customers for the loans, mortgages and ATMs. Moreover, they also charge an additional fee for processing their financial transactions.


What is VAT And What Are Its Requirements?

Value Added Tax (VAT) is a tax levied by the HMRC in the UK. As an organisation, if your income has crossed the threshold of £85 000, your business is liable to pay a standard rate of 20% on the earned income. The reduced rate or 5% or zero rates might also apply to specific requirements.

The VAT rates will vary slightly in the case of self-employed persons or contractors. However, in the case of enjoying the bank services, the HMRC have exempted the bank charges from the VAT rates. The use of bank services does not require the business firms to make VAT payments or claim VAT deductions from the HMRC.


VATable Bank Services

However, the usual bank services where you transfer funds and enjoy the services related to bank and saving accounts, do not require you to pay VAT. Except for the following services which you are using from the bank and the bank charges a fee on the provision of these services.

  1. bookkeeping services
  2. debt collection and credit control
  3. depository and trustee services
  4. equipment leasing
  5. executor and trustee services and the administration of estates
  6. investment, finance and taxation advice
  7. management consultancy
  8. merger and take-over advice
  9. portfolio management
  10. registrar services
  11. safe custody and safe transportation services
  12. service companies’ activities, for example, administration, payment of salaries and wages
  13. the issue by a bank of a note payable to the bearer on demand (but taxable at the zero rates)

In short, the financial services covering the financial payments and transfer of funds cannot include VAT in the bank charges. On the other hand, any financial services related to counting, delivery, packing, and collecting reconciling can be considered VATable in the UK.

Similarly, if someone is providing the VAT-exempted financial services as an outsourced service, they must have to pay VAT by examining the right kind of VAT with the help of HMRC. Similarly, if a person is making financial transactions outside the UK, all the transactions will not be exempt from the VAT.


The Bottom Line

In the end, we conclude that most financial bank charges are exempt from the VAT. If you not paying VAT on the bank charges, it also leads to the conclusion that you cannot claim VAT on the bank charges.

However, there are some services related to the counting, delivery, packing, collecting and reconciling financial services provided by the bank and a bank charges a fee on them. Such charges have VAT liabilities. The bank charges are somewhat tricky, you can visit the official website of the HMRC or seek the help of a professional consultant to discuss your VATable liabilities to get a more detailed and personalised overview of your tax returns and refunds.


VAT on bank charges or other related financial issues can be best managed by qualified accountants and bookkeepers at the AccountingFirms in the United Kingdom. Reach out to us!


Disclaimer: All the information provided in this article on Are Bank Charges VATable, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.