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HMRC internal manual

VAT Finance Manual

Money (including transfer of money) and related services: operation of a current, deposit or savings account: outsourced services

If a business other than an authorised deposit taker claims it is operating an account, you should establish exactly what it is doing (see VATFIN2500 for what acts or services might be included in what is termed the ‘operation’ of the account). In some circumstances, an outsourced service provider (who is authorised to issue cheque books, receive payments etc) may be operating an account - depending on the terms of the contract.

When trying to determine whether an outsourced service falls to be exempt you must consider whether that service, when viewed broadly, forms a distinct whole, fulfilling in effect the specific, essential functions of a service described in the exemption. The mere fact that a constituent element is essential for completing an exempt transaction does not warrant the conclusion that the service, which that element represents is exempt. Finally, if the service entails only technical and electronic assistance to the person performing the exempt service, it does not fulfil the conditions for exemption. These tests were set out by the ECJ in the case of *Sparekassernes Datacenter (‘SDC’) *- see VATFIN2260.

You should always ensure that there is a supply for VAT purposes in the first instance (VATSC03200).

For example, an authorised deposit taker sending out account statements, and charging the account holder a fee, would exempt its service because it is part of the operation of the account. However, if this service is outsourced to a third-party, and that third party sends out the statements and charges the authorised deposit taker, whilst the fee charged to the customer by the authorised deposit taker would remain exempt, the service provided by the third party to the authorised deposit taker would be taxable. This is because it is not the operation of an account by the third party but is administrative assistance to the authorised deposit taker.

If you have a question concerning outsourced account services please contact the Financial & Commodities VAT UoE for advice.