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HMRC internal manual

VAT Finance Manual

Financial derivatives: Trading on the London Financial Futures and Option Exchange (

It is important to identify whether:

  • a seller is an exchange member or not; and
  • the counterparty is an exchange member or not.

Trades by a “floor” member

  1. Trades between members on own account

Transactions between members on their own account are treated as not being supplies for VAT purposes.

  1. Trades on behalf of another person

Where a member trades on behalf of another person he acts as principal. There is a supply where a commission or turn is charged to either a person who is not a member or a person who, whilst being a market maker, does not deal in that particular contract.

  1. Closing out by the client

As a client “closes out” his contractual position by the purchase of another contract, the client does not make a supply.

  1. Maturity of contract

Where a contract runs to maturity and settlement takes place by means of the transfer of an underlying instrument, there is a supply of that instrument, in addition to any supply arising from the original sale of the contract.

NB – cash settled futures do not result in a further supply.

  1. Margin payments

Margin payments (whether initial or variation) fall outside the scope of VAT as they are treated as down payments on account in respect of a potential future liability.

Trades by “locals”

When determining the VAT treatment of trades by “locals” please see paragraph 8.5 of Notice 701/49 Finance.