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UK tax authorities check treatment by banks of overseas suppliers

HMRC’s approach to business compliance, as noted in their annual report, indicates that they consider that key areas of risk include overclaimed input VAT and under-declared output VAT.

The following are just some of the ways banks may overclaim input tax or underclaim output VAT:

  • By incorrectly treating supplies as VAT exempt, when VAT should have been charged;
  • Through errors in the operation of the bank’s partial exemption method for recovery of input VAT, including as a result of gaps in the method, or an out-dated method;
  • When UK suppliers incorrectly charge VAT on supplies made to the bank, perhaps as a result of errors in determining the VAT treatment of outsourced services;
  • As a result of the incorrect application of “reverse charge” VAT.

Source: BDO