The financial service sector has welcomed an announcement by Brussels to update the VAT regime for the industry

Problems have arisen as financial services and insurers have been exempt from VAT. They are not required to charge VAT when providing services, but have to pay VAT on goods and services acquired for business, which leads to mismatches and places the institutions at a disadvantage to foreign competition.

The EC yesterday proposed that it would focus on redefining what services are exempt from VAT, providing the sector the option of taxing services and an industry-specific VAT exemption on cost-sharing arrangements.

'The changes will increase clarity, allowing firms to operate and plan more efficiently. This is especially true of firms with cross border operations who will be able to pool operations and share costs between group members without creating additional non-recoverable VAT,' said Sarah Knight, assistant director of financial regulation and taxation at the Association of British Insurers.

Further reading:

Read the full statement from Brussels

Multi-million pound VAT victory for funds