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HMRC internal manual

VAT Finance Manual

Securities and related services: characteristics of an item 6 security

A security, in its simplest form, is a financial asset. However, the law at item 6 limits the scope of the exemption to the securities listed (see VATFIN4100). Secondary securities, i.e. letters of rights, option warrants and certain deposit certificates, are also included in the list in item 6. Item 6 does not include products that may use a similar name e.g. ‘performance guarantee bond’ (see para 3.3 of VAT Notice 701/49 Finance). Such products that are not financial in nature do not fall within the scope of the exemption.

Equity securities

Shares in companies are the most basic form of equity security and will usually, but not always, involve some or all of the following features:

  • voting privileges
  • a share in the profits payable by way of a distribution, i.e. dividend
  • a proportionate share of the assets of the business in the event of a winding up (after payments of creditors)
  • subscription privileges in the event of a new issue of shares (pre-emptive rights).

Debt securities {.filledcircle}

A debt security is defined as an instrument which is issued, often in the form of a certificate, to evidence contractual obligation to make payments of interest and to redeem a stated principal amount on a stated future date or dates.