On 13 December 2017, the Court of Appeal held7 that a bank could not recover input VAT incurred on provision of its deposit accounts.

The bank wished to recover certain VAT costs incurred in connection with a deposit-taking business. The bank argued that it was not providing any supply at all (it was the mere recipient of a loan from the customer). HMRC’s view was that the bank was providing (exempt) banking services.

The Court considered the nature of the services provided by the bank, and concluded that the provision of a current account is the provision of a banking service even if the current account is always in credit. The bank argued, unsuccessfully, that any service it provided was different to that provided by most banks (e.g. there were no walk-in branches, ATMs or credit/debit cards) and the methods of paying in and withdrawing money were more restricted than is usually the case. The Court held, however, that the facilities provided by the bank (i) were valued by depositors, (ii) went beyond that which would be provided by a mere borrower to a mere lender, and (iii) were not “peripheral” to the deposit transaction. 

As the bank provided exempt banking services, the Court accordingly held that the related input tax was irrecoverable. The Court (approving the earlier finding that there was in fact a barter transaction) rejected the bank’s secondary argument that, even if providing exempt banking services, they were not provided for consideration.

The decision can be viewed here.