Do I charge VAT on my financial services?

This question reaches us from far more than banks. Introducers and affiliates earning commission for sending customers to a lender or insurer, businesses offering instalment credit or deferred payment, consultants whose fees get folded into an arrangement, fintech and payment apps: all of them touch the finance exemption without thinking of themselves as a financial institution. The instinct that it is all exempt is usually right for the core service, but the money sits in the exceptions, and in the input tax you quietly stop being able to recover. Here is where the line actually falls.

Start from 20%, not from the exemption

The cleanest way to answer this is to flip the question round. VAT does not start from a list of exempt things; it starts from the assumption that a supply of services in the UK is standard-rated at 20%, unless something specifically takes it out. Financial services are taken out by Group 5 of Schedule 9 to the VAT Act 1994. So the real question is not "are financial services exempt", it is "does my specific service land inside Group 5". Everything below is about answering that for your supply, and about what the exemption costs you once it applies.

What actually sits inside the finance exemption

Group 5 exempts the core mechanics of money and credit. In plain terms, that covers making loans and advances and charging interest, operating current, deposit and savings accounts, transferring and handling money, issuing and dealing in securities such as shares and bonds, and providing instalment credit where the credit charge is separately disclosed to the customer. If your service is genuinely one of these, you do not charge VAT on it.

Insurance is exempt too, but through a different door: it sits in Group 2, not Group 5, with its own rules for brokers and agents. It is worth keeping the two apart in your head, because the intermediary tests are not identical.

The services that look financial but are standard-rated

This is where most of the money, and most of the mistakes, live. A range of services sit right next to the exemption and are still standard-rated at 20%, even when a bank, broker or adviser is the one supplying them. HMRC's finance guidance, Notice 701/49, is explicit about the main ones:

• Advice on its own: investment, finance and tax advice, and management consultancy, are standard-rated when supplied as a service in their own right.
• Discretionary portfolio management: managing a client's investments for a fee is taxable, even though the underlying dealing in securities is exempt.
• Debt collection: chasing and collecting debts for a fee is standard-rated.
• Safe custody and safe deposit: the physical safekeeping of documents or valuables is a storage service, taxable at 20%.
• Data, registrar and administrative services: supplying price feeds, registrar services or pure back-office administration is standard-rated when sold on its own.

The pattern is consistent: handling the money or arranging the transaction tends to be exempt; advising, managing, collecting, storing or administering tends to be taxable. Where a single price covers a bundle, the liability usually follows the main service, but that is a test to apply with care, not a licence to sweep everything into the exempt column.

Intermediaries: exempt only if you arrange the deal

Item 5 of Group 5 exempts intermediary services: bringing a customer and a provider of finance together with a view to a deal, and doing the work that gets that deal concluded. This is the exemption that brokers, introducers and arrangers rely on, and it is read narrowly.

The dividing line is what you actually do. Genuinely arranging a transaction, negotiating terms, handling the steps that bring the contract into being, is exempt. Simply generating leads, running advertising, or passing a customer's details to a lender is not: the legislation itself carves market research, advertising, promotion and the mere supply of information out of the exemption. Two businesses can look identical from the outside, an affiliate link and a mortgage broker both "send customers to a lender", and land on opposite sides of the line because one markets and the other arranges.

For an introducer earning commission, this is the whole question. If your contract and your actual activity show you arranging the deal, your commission is exempt. If you are really being paid for marketing reach, it is standard-rated at 20%, and pricing it as exempt leaves you exposed to an assessment.

Exempt is not free: the input tax you lose

Here is the part businesses underestimate. When a supply is exempt, you do not charge VAT, but you also cannot recover the VAT you were charged on costs that relate to that supply. The exemption protects your price; it quietly taxes your overheads.

If everything you do is exempt, you generally cannot register for VAT on that activity at all, and the input tax on your costs is simply a cost you carry. If you make a mix of exempt and taxable supplies, you are partly exempt: you recover the VAT on costs tied to your taxable work in full, none of the VAT tied purely to exempt work, and a fair proportion of the VAT on shared overheads such as rent, software and professional fees. That apportionment has to be calculated, reviewed each quarter, and trued up once a year in an annual adjustment. Partial exemption, whose mechanics are set out in Notice 706, is where a finance-adjacent business most often over-recovers or under-recovers without realising.

When exemption works in your favour: overseas clients

There is one important twist that runs the other way. Exempt finance and intermediary services supplied to customers who belong outside the UK can carry input tax recovery, under what is known as the Specified Supplies Order. The supply stays exempt, so you charge no VAT, but you are allowed to reclaim the VAT on costs attributable to it, which you could not do for the same supply to a UK customer.

For a broker, lender or fintech with overseas clients, that is real money. It also means your partial exemption calculation has to separate UK-facing exempt work, where there is no recovery, from overseas-facing exempt work, where there is, rather than treating all exempt income as one block.

Exempt income and the £90,000 threshold

One practical point that catches new businesses out: exempt supplies do not count towards your taxable turnover for the £90,000 VAT registration threshold. If your income is genuinely all exempt finance, it does not push you towards registration at all. But any standard-rated slice, the advice, the management fee, the marketing-style commission, does count, and can take you over the line on its own. Getting the exempt-versus-taxable split right is therefore also what tells you whether, and when, you need to register.

When you might need expert VAT advisory

The core service is usually easy to place. The value in a specialist's read is at the edges, where a small difference in what you actually do flips both the VAT treatment and the money involved. In practice, these are the situations worth a senior specialist's time:

• You earn commission for introducing customers to a lender, insurer or product provider, and need to know whether it is exempt intermediation or taxable marketing
• You offer instalment credit or deferred payment and want the credit charge structured and disclosed so that it genuinely qualifies as exempt
• You make both exempt and taxable supplies and want a partial exemption method that recovers as much as it fairly can, and survives an HMRC review
• You supply finance or intermediary services to clients outside the UK and want to capture the input tax recovery the Specified Supplies Order allows
• You run a fintech or payment business whose model has never had its VAT treatment properly pinned down
• You are an accountant onboarding a financial-services client and want the treatment sense-checked before the next return

Whether you're a business owner or an accountant working on a client case, we focus on the VAT questions where extra expertise pays off, and we work in plain English.