VATFIN2420 - Money (including transfer of money) and related services: examples of services and products not falling within item 1: sorting and counting money

The service of collection, counting and sorting is a taxable supply, as in these circumstances the money is no different to actual goods (see VATFIN2410).

Where supplies include collection, counting, sorting and holding, as well as notifying a bank of the amounts collected, the service is seen as a single composite supply, the counting, sorting and holding of money being the predominate element, or core, of the supply. This core is taxable. All other elements are ancillary and thus follow the liability of the main supply. In essence, the bank is paying for independent verification of the money, which includes counting and sorting of it.

A third case involving Securicor was brought to tribunal in Barclays Bank PLC (decision 2622).

Barclays appealed against the Commissioners’ decision that certain banking support services supplied to it by Securicor were liable to VAT. The bank entered into a formal agreement with Securicor relating to a credit checking and change service. This service entailed:

  1. counting and checking the contents of collected sealed containers from the customers of the bank against paying slips provided. A separate credit checking charge was made for this. An additional service of checking the total fund and consolidating the cash was performed;
  2. the cash held in trust by Securicor was often sorted on the Bank’s instructions for those customers who needed it for change or wages. For the change service a separate charge was made to the bank and shown on bank support services as ‘charge for change’ or ‘change fee’. For the wages service Securicor made a separate charge to the customers.

There was an additional contract between Securicor and each customer relating to the actual collection of the sealed containers and the delivery of change (i.e. the carriage of money). This service was liable to VAT. Barclays contended that the services at (a) and (b) were exempt as a ‘dealing with money’ under item 1, as these would be typical of functions performed by a bank clerk. It was also submitted that Securicor were ‘making arrangements’ (now obsolete). Alternatively it was proposed that the services fell within item 7 (now at item 8), because it took part in the operation of current, deposit or savings accounts.

The tribunal considered the decision in Williams & Glyn’s and concluded that Barclays’ services had sufficient characteristics of a financial transaction and were not merely counting/transportation services.

In upholding the appeal the tribunal concluded the services were exempt under item 1. It stated that [w]hile it is clear that Securicor was not acting as a banker carrying out the general activities of a bank which dealt with a whole variety of financial transactions, we reach the conclusion that Securicor did, in providing the credit checking service and the change service, perform services which were normally performed by the bank as an integral part of its banking activities. In providing [the] credit checking service and the change service Securicor was daily handling large specific amounts of cash on some occasions held in trust for the Bank and on other occasions held in trust for customers of the Bank who were also its own customers. Such handling of large amounts of cash in specie went well beyond the mere transportation and keeping safe large non specific amounts of cash in sealed containers as in the Williams and Glyn case.

However, since this decision, other cases heard by both higher UK Courts and in the ECJ has meant that it is now incorrect.

Consistent with the judgment in the SDC ECJ case (see VATFIN2210) simply doing something that a bank would otherwise do is not sufficient for exemption. Any supply must be exempt in its own right.