Are bank charges subject to VAT?

[BankFodder]

am very curious to know whether bank charges are subject to VAT?

 

I imagine that if they are just penalties and accurately reflect the losses incurred by the banks when bouncing a DD or bearing an unauthorised overdraft, then they might not be VATable.

 

 

 

However if the charge really is the fee charged by the bank for providing a service - as some of the banks somtimes say - then surely there must be a VAT element included within the charge.

 

If not, then why not. Why would these charges be zero rated?

 

If they are VATable then has anyone received a properly prepared VAT invoice?

 

The point of this question is that If the charges VATable then it is scarcely imaginable that the banks are not paying it. They don't make these kinds of mistakes. On the other hand, maybe stranger things have happened.

 

What interests me is that if the charges are VATable then I would expect that they would be required to issue VAT receipts and at present they don't do this.

 

To require VAT receipts would be a good way of obtaining from any Bank the entire histoory of overdraft and interest charges going back a long way without having to resort to Data Protection or having to pay for bank statements.

 

If the charges are not VATable, could this be that the banks have represented them to C&E as being true penalties? If so then we should be entitled to know about it.

 

If the charges are more than penalties and thereofre contribute to the profit made by the banks then why are the not VATable and surely receipts should be given.

 

 

This thread needs someone knowledgeable about VAT to respond to it.

[Seminole]

I've just spoken to a friend of mine who recently retired from HMRC and he confirmed that most bank charges are exempt. There are three main classes of transaction for VAT purposes standard rates (17.5% for most things), zero rated (where the item could attract VAT but this is charged at 0%) and exempt which is deemed outside the scope of VAT.

 

A lot of financial transactions are exempt (eg interest on a loan) and bank overdraft and credit card penalty charges fall within this category. The main exception to this general rule are forms of commission based transactions. This means that for example a broker's loan arrangement fee could be vatable but this depend heavily on the terms of the cpmtract.

 

If anyone wants the statutory references for this, please let me know.

[TB Law]

There is no VAT on bank charges as financial services are exempt.

 

A very intersting observation because bailiffs fees are VAT chargeable, but since there is no receipt or invoicing system, or none that is visible to the VAT payer, then it is "scarcely imaginable" that the bailiffs are not paying it.

[noomill060]

Ok, a liitle late in response but I would like statutory references, please.

 

"and bank overdraft and credit card penalty charges fall within this category"

 

BUT they arent penalty charges, are they? The Supreme Court said so.

 

The Banks won the Test Case by convincing the Supreme Court that their charges are a FEE for a SERVICE and that this service is a core to their business bringing in billions every year.

 

Damn right they should be paying VAT and issuing VAT receipts.

 

Its now not a trivial amount like interest on a loan, they state its a definate service they provide.