Transitional guidance for VAT specified supplies

This information sheet provides further guidance on the VAT treatment of specified supplies following the changes made to the Value Added Tax (Input Tax) (Specified Supplies) Order (SSO) 1999 which came into effect at 11pm on 31 December 2020.

This includes banks, investment managers, insurers and brokers.

General description of the change and background information

Financial services (including insurance) are generally exempt from VAT which means that no VAT is charged by businesses supplying financial services and VAT on the costs relating to those supplies cannot be deducted as input tax.

The SSO allows businesses who export certain financial services, known as specified supplies, to deduct input tax on costs associated with making those supplies.

Prior to the end of the EU transitional period, the SSO only provided a right to deduct input tax in relation to specified supplies made to customers belonging outside the EU. With effect from 11pm on 31 December 2020, the SSO was extended to include specified supplies made to customers belonging in the EU.

The SSO now provides a right to deduct input tax for specified supplies made to EU customers as well as those belonging outside the EU. These changes are included in SI 2020/1545 at regulations 91 and 92.

VAT treatment of specified supplies that span 11pm on 31 December 2020

Directly attributable input tax incurred before 11pm on 31 December 2020

Input tax you incur before 11pm on 31 December 2020 that is used exclusively to make an exempt financial supply to a person belonging in the EU before 11pm on 31 December 2020, is directly attributable to an exempt supply and carries no right to recovery.

Re-attribution of input tax incurred before 11pm on 31 December 2020 as part of the longer period adjustment ending after 11pm on 31 December 2020