In ING Intermediate Holdings Ltd v HMRC1, the Upper Tribunal (UT) has dismissed the taxpayer’s appeal and held that VAT attributable to providing deposit accounts by a bank is irrecoverable.


Ing Intermediate Holdings Ltd (the taxpayer), is a retail bank offering only deposit accounts. It invested the funds raised from customer deposits to generate a profit. The taxpayer made investments, mainly in bonds, with a view to holding them to maturity.

Deposits made into accounts with the taxpayer could be withdrawn without notice but had to  be to another bank account held by its customer. The taxpayer had no branches, and all services were provided electronically via telephone and the internet. No cheque books, debit cards or overdraft facilities were provided and there were no fees or charges. However, the terms of the accounts reserved the right to introduce or vary charges. The terms of the accounts referred to “customers” and to the “services” provided by the taxpayer.

HMRC refused the taxpayer’s part recovery of input tax on the substantial costs it incurred on expenditure on advertising campaigns, the construction of its head office and call centres and staff.

The taxpayer appealed to the First-tier Tribunal (FTT), arguing that the deposit-taking side of its operations supported its investment business and that, therefore, those costs were partially recoverable as overheads attributable to specified supplies relating to investments. HMRC argued that the input tax was attributable to exempt supplies of banking services and was therefore  irrecoverable.

The main issue was whether the deposit taking activity involved a supply of services for consideration by the taxpayer or whether it was merely the lending of money.

The FTT dismissed the taxpayer’s appeal. In its view the input tax was irrecoverable because it was attributable to exempt banking supplies made to deposit account customers. It found that the VAT in question had a direct and immediate link to those banking supplies, rather than to the taxpayer’s investment business, which was funded by the sums held on deposit.

UT’s decision

The UT dismissed the taxpayer’s appeal. It agreed with the FTT that the taxpayer’s supply of a deposit account was a supply of services of the provision of deposit accounts to customers in return for consideration. With regard to consideration, the UT considered that  quantification was possible but did not reach a conclusion on quantification as all that was required was for quantification to be possible. As a result, input VAT incurred in attracting deposit account business was not recoverable to the extent that the deposited funds were used for investment activity to generate an investment return from non-EU investments.

Although it had decided the case in favour of HMRC, the UT nonetheless went on to consider whether the activity of investing the deposit funds in bonds represented an economic activity to resolve this issue it would have been necessary to refer the matter to the ECJ. However, as this was not necessary in order to dispose of the appeal, no reference was made.


Although much of a bank’s activities is likely to constitute a supply of services, given the VAT- exempt nature of most banking business the input tax on such supplies is likely to be rendered irrecoverable, creating a real cost for banks. As a consequence, a taxpayer in the financial sector is likely to be in a worse position than taxpayers in other sectors in raising funds.