Agreeing a VAT efficient partial exemption method with HMRC

A start-up business approached Throgmorton for guidance.

The firm, which provides broker-dealer services such as advisory services and ‘matched securities’ arrangements to institutional and retail clients, enquired about its VAT profile, and sought to better manage its cash-flow forecast in its three-year business plan.

Our VAT specialist started off by guiding the client through the complicated VAT rules affecting financial cross-border transactions and the appropriate treatment dependent upon the type of customer (a business or private individual, for example).

We then developed an agreed plan to build a bespoke VAT accounting system and process, recognising the client’s own revenue flows and cost allocations.

In understanding the business as a whole – and the commercial transactions taking place – our VAT specialist helped the client to focus on the material sources of revenue and its related customer base. The commercial arrangements were a major contributor to the way in which the business' VAT costs were allocated and recovered according to the partial exemption rules and, having advised a great number of firms from the financial services sector over the years, we were able to identify costs attributable to the clearing and settlement transactions in devising the most efficient partial exemption method.

To establish certainty around the principle of cost allocation, we submitted and received approval from the Clearance Team at HM Revenue & Customs.

With these stages in place, and the certainty established with HMRC, our VAT specialist worked together with our accountancy team to devise and implement an efficient process to handle the company’s quarterly VAT returns by identifying the appropriate cost allocations within the monthly management accounts.


Throgmorton: “Our strong experience in the financial services sector gives us excellent insight when it comes to examining the needs of a business such as this.”

For VAT advice contact Dan Kerry.

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