Other law and policy to consider: input tax recovery
The place of supply is a major factor in determining the right to deduct input tax. Input tax is generally only recoverable on supplies which fall within the VAT Act 1994, section 26(2).
Input tax allowable under the VAT Act 1994, section 26:
|26(1) The amount of input tax for which a taxable person is entitled to credit shall be so much of the input tax as is allowable under regulations as being attributable to supplies within subsection (2) below.|
26(2) The supplies within this subsection are the following supplies made or to be made by the taxable person in the course or furtherance of his business
- taxable supplies;
- supplies outside the United Kingdom which would be taxable supplies if made in the United Kingdom;
such other supplies outside the United Kingdom and such exempt supplies as the Treasury may by order specify for the purposes of this subsection.
It is therefore clear that input tax is recoverable on supplies, which are taxable, including taxable financial or banking services, for example, debt collection, whether those supplies are made in the UK or elsewhere.
For exempt Group 5 supplies (which cannot be taxable supplies) the right to deduct input tax is set out in the Value Added Tax (Input Tax) (Specified Supplies) Order 1999 (SI 1999/3121).
|2 The supplies described in articles 3 and 4 below are hereby specified for the purposes of 26(2) (c) of the Value Added Tax Act 1994.|
3 Services -
- which are supplied to a person who belongs outside the member States;
- which are directly linked to the export of goods to a place outside the member States; or
- which consist of the provision of intermediary services within the meaning of item 4 of Group 2, or Item 5 of Group 5, of Schedule 9 to the Value Added Tax Act 1994 in relation to any transaction specified in paragraph (a) or (b) above,
|provided the supply is exempt, or would have been exempt if made in the United Kingdom, by virtue of any item of Group 2, or any items 1 to 6 and item 8 of Group 5, of Schedule 9 to the Value Added Tax Act 1994.|
For further information on specified supplies read section 8 of VAT Notice 706 Partial exemption.
All supplies of intermediary services to someone outside the EU, or which are directly linked to the export of goods to a place outside the EU, fall within the specified supplies order and input tax is recoverable.
To determine whether someone is supplying intermediary services, see VATFIN7000. For information on place of supply and input tax recovery for intermediaries, see VATPOSS.
Securities special rule: ‘the easement’
If you do not know the place of belonging of a buyer of securities, and it is important in deciding whether or not a right to deduct input tax exists, you can use a special rule known as ‘the easement’ to decide the place of supply. Details of the easement rule are given at paragraph 6.16 of VAT Notice 701/49 Finance.