Money (including transfer of money) and related services: operation of a current, deposit or savings account: what is meant by ‘current, deposit or savings account’?; other types of account
Prior to the introduction of the Financial Service and Markets Act 2000 (FSMA), the Banking Act 1987 permitted only ‘licensed deposit takers’ and those authorised on their behalf to operate accounts. Deposit taking is now regulated by the Financial Services Authority, which grants authorisation under the FSMA to take deposits in the course of business.
Normally only banks, building societies or a Government agency (such as National Savings) operate accounts, but over recent years authorised deposit takers have outsourced some, or all, of their account operations functions, so that there are sometimes difficult borderline issues surrounding whether an outsourcer operates the account for the purposes of the exemption. The question of outsourcing is looked at in VATFIN1600 and in VATFIN2500.
A current account is an account into and from which deposits, withdrawals and third-party payments (e.g. direct debits) can be made. They are also known as cheque accounts. The authorised deposit taker normally issues chequebooks free of charge and supplies regular statements listing recent transactions. There may also be a cheque guarantee and/or debit card linked to the account. The authorised deposit taker can make charges for the operation of the account - for example, transaction charges - but most personal customers only pay for a negative balance (e.g. overdrawn accounts, unauthorised withdrawals). The operation charges are normally financed in other ways - for example, by investing the customers’ money. VATFIN2940 looks at some of the possible charges levied to customers and their liability.
These are accounts used for the purpose of saving and the deposits can be repayable on demand, withdrawable on specified notice or must remain in the account for a fixed period. The interest paid to the customer is linked to the current rate of interest. As with current accounts, there are normally no charges made to the customer for the operation of these accounts, but unlike current accounts there are usually no chequebooks issued or provision of third-party payment facilities.
As with the deposit account, the savings account is used for the purpose of investing personal savings, and come in a wide variety, such as those offering different terms and conditions to interest rates. Many accounts offer instant access to the savings, but they can also require either 30, 60 or 90 day notice to be given. The rate of interest earned can vary according to the sum invested and the length of the period in which the money must remain in the account.
Finally, like deposit accounts there are no chequebooks issued or provision of third-party payment facilities.
Other types of account
As can be seen, UK law is quite specific about the types of accounts that fall within the exemption. So the operation of anything that is not either a current, deposit or savings account will not qualify for the exemption. It is therefore essential to determine whether the account being operated falls to be one of those described.
If you encounter a business claiming exemption for the operation of an account, which is not one of those outlined above, please consult the Financial & Commodities VAT UoE.