On 1st March 2019, HMRC published a new statutory instrument, which in the event of a no deal Brexit, which would expand the right of VAT recovery to businesses supplying certain exempt “specified” financial and insurance services to EU customers.
This significant legislative development is an about-turn of government policy, replacing recently issued regulations which would have continued to preserve the current VAT treatment on such supplies.
Under the present law, financial services are generally exempt for VAT purposes and this means that any related input VAT cannot be reclaimed. But as an exception to this rule, UK businesses that make supplies of “specified” financial and insurance services to recipients outside the EU, or services in connection with an export of goods to a place outside the UK, may reclaim the VAT on the costs of goods and services, related to those supplies.
The new rules will permit the application of what is essentially the zero VAT rate to all specified supplies that are provided to non-UK recipients.
In the event of a deal, the current recovery position will be maintained.