VAT exemption for Loan Administration services

The UK Supreme Court has ruled that Target Group’s loan administration services to a bank are not VAT-exempt finance services, overturning previous caselaw. This could have a knock-on effect for other financial intermediary businesses and financial institutions as customers. Certain financial services are exempt from VAT, including the issue, transfer, receipt or dealing with money, loan management services by the person granting the loan, and the operation of a current, deposit or savings account. Target argued that its loan administration services should be exempt under these rules, but HMRC argued they were taxable. The courts ultimately agreed with HMRC, stating that a narrow approach to the exemption should always apply. The decision does not address wider uncertainties in VAT treatment for businesses servicing lenders. It is hoped that HMRC will provide guidance on how to apply the exemption in different scenarios.

Source BDO

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