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HMRC internal manual

VAT Finance Manual

Money (including transfer of money) and related services: interpreting Item 1: what is meant by ‘issue‘

The issue of money can only be by a bank or similar financial institution that has a statutory entitlement to do so (e.g. the Bank of England).

The exemption at item 1 is superseded by Schedule 8, Group 11, item 1 of the VAT Act 1994, which zero-rates:

The issue by a bank of a note payable to the bearer on demand.

The first issue of a banknote where it is a supply by a bank is therefore liable to VAT at the zero-rate. For example, the issue of new banknotes by the Bank of England to another bank in return for bonds is a supply for VAT purposes liable to the zero-rate.

The issue of a note, cheque or security for money may not be a supply for VAT purposes at all (remember there has to be a consideration for that supply), but where you have established there is a supply, it will be exempt (as against a bank note, which will be zero-rated).

An example of an issue not being a supply for VAT purposes is a bank teller giving new notes to a customer in exchange for a cheque.

Whether the ‘issue’ of banknotes by via Automated Teller Machines (ATMs - looked at in greater detail in VATFIN2600) falls to be zero-rated was considered in the Scottish tribunal in the case of Royal Bank of Scotland (‘RBS’ - Tribunal decision 17143).

RBS is one of three Scottish Banks with the entitlement to issue banknotes and usually puts its own notes into its ATMs. The Commissioners argued that the fees it received from other banks for using RBS’s ATMs were consideration for an exempt supply of reciprocity or interchange (exempt under Group 5, item 1 as transfer of money) - dispensing its notes to customers of other banks. RBS argued that the supply was liable to the zero-rate as the first issue of a banknote.

The tribunal had to determine what specifically and essentially the bank was supplying in consideration of the payment by the counterparty bank. In dismissing the appeal, it concluded that it was a service of providing the customers of counterparty banks with the facility to obtain money.

The tribunal’s decision was subsequently upheld by the Court of Session ([2002] STC 575). In the Court’s judgment the reciprocity fee was consideration for the provision to the counterparty bank of a service to that bank’s customer in the form of a facility to withdraw cash.

It is therefore quite clear how limited the meaning of ‘issue’ actually is. You are unlikely to encounter an exempt supply of issuing money unless you assure an ‘issuing’ bank, and even then it depends how the money is issued.