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