VAT recovery: good news and bad news

If you’re a broker or FX trader who ignores VAT, you may be losing out on significant amounts of VAT recovery.  Many brokers and FX traders take the view that VAT is just an additional cost to them, and one which they can ignore.

In addition, certain financial services businesses, especially those that purchase services from overseas, may unknowingly have a VAT exposure.

With our expertise in financial services and VAT, we can clarify the issues surrounding VAT recovery. From a balanced viewpoint, there is bad news and there is good news. Let’s start with the…

Good news: VAT recovery opportunities

In general, it is correct that as a broker or FX trader, you are unable to recover VAT incurred.  An exception to this rule arises where you make supplies to counterparties located outside the EU.

Trades with counterparties outside the EU allow your business the right to recover input VAT, even though no output VAT is chargeable.  A business making such supplies is able to voluntarily register for VAT.  This is good news because this will result in a VAT repayment from HMRC.

As a broker or FX trader, you’ll be accustomed to operating under complex arrangements with clearers, prime brokers and other parties.  From a VAT perspective, it can be difficult to determine who is actually making the supply and who the counterparty is.  We have often found that no two brokers or foreign exchange traders operate in exactly the same manner.

To make things more complex, brokers and traders will often make a mixture of supplies to UK, EU and non-EU customers. This can result in you recovering only a proportion of your input VAT.   The precise level of input VAT recovery usually needs to be agreed between the business and HMRC, and depends partly on the split between EU and non-EU customers.

Now for the…

Bad news: reverse charge

If as a broker or trader you purchase data, software or certain other services from overseas, this could spell VAT trouble.

Where UK businesses receive services from overseas, they need to account for VAT under the “reverse charge” rules.  The rules work by requiring any UK business (whether or not registered for VAT) which buys services from a foreign supplier to account for the VAT which would have been suffered if the services had been bought from a UK supplier.  Where the value of these services exceeds the VAT registration threshold (currently £85,000 per annum), a non-VAT registered business becomes obliged to register for UK VAT.

For brokers, traders and other businesses unable to recover all or most of their VAT, this self-accounted VAT charge becomes an additional cost.

Purchases of data, software, outsourced services and secondment of staff can all fall within the reverse charge rules. It may be possible to structure the supply of such services so that the reverse charge rules do not apply.

How BKL can help

Ensuring you get VAT issues right is crucial to your business, since dealing with it at a later stage can be costly to your business. BKL has an expert understanding of your industry and our guidance can make a difference to your business.

Whilst VAT is a specialised area, our VAT advisers are part of a wider team of financial services experts at BKL. Together we are able to work through each issue, from tax to regulatory and assurance. We look at the bigger picture of your business, not just the VAT issues, so that we can deliver pragmatic solutions. That certainly isn’t bad news.

For more information about how we can help, please get in touch with your usual contact at BKL or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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