Effective zero-rating for no-deal Brexit specified supplies to EU customers

The Government has announced that, in the event of a no-deal Brexit, it intends to extend the current rules allowing for recovery of input VAT on certain specified supplies which are made to non-EU customers to situations when those specified supplies are made to EU customers.

The Government has tabled a further no-deal Brexit SI which would mean that certain specified supplies of services (including supplies of insurance and other financial services) made after exit day to EU customers would benefit from the same effective zero-rating as currently apply to such services supplied to non-EU customers.

The Government had been concerned at the revenue cost of extending the ability of businesses to recover input VAT on such supplies when made to non-EU customers to supplies to EU based customers post-Brexit. It appears that the Government has, however, been persuaded, in the short term at least, that a consistent and business friendly approach is the better course to take at a time of unparalleled uncertainty.


Under the current VAT rules, a business providing certain specified supplies of services (such as insurance and financial services) to a person outside the UK will be entitled to input VAT recovery on the costs associated with those supplies. These “specified supplies” attract beneficial input VAT treatment pursuant to the VAT (Input Tax) (Specified Supplies) Order 1999 (the Specified Services Order).

A significant question for banks, insurers and other businesses in the financial services industry has been whether the UK would extend the current rules for specified supplies of insurance and finance to non-EU customers to supplies of those services to EU customers post-Brexit. The ability of financial service providers to exempt such supplies and recover related input VAT is a significant benefit and, in principle at least, it would seem consistent to apply the same approach to supplies to all non-UK customers post-Brexit.

However, the Government has been concerned over the revenue cost of extending input VAT recovery right to supplies of financial services to EU customers and has, accordingly, been considering the issue.

Extending the Specified Supplies Order

The Government has now published the VAT (Input VAT) (Specified Supplies) (EU Exit) (No 2) Regulations 2019. These regulations will make ensure that supplies covered by the Specified Supplies Order benefit from the effective zero-rating (exemption with input VAT recovery) whenever they are made to customers outside the UK.

The SI will, however, only come into effect should the UK leave the EU without a deal.

In addition, the SI will also bring in two related changes to partial exemption rules. Firstly, it will ensure that where a business has a partial exemption special method approved by HMRC before the UK exits the EU, the wording of its partial exemption special method will be interpreted in accordance with the VAT treatment that will apply under the Specified Supplies Order after the UK exits the EU. This will avoid the need for businesses to negotiate new methods with HMRC, reducing the administration on both business and HMRC.

The SI also amends legislation to ensure that businesses that supply financial services alongside their main business activity (ie incidental supplies) will apportion VAT on supplies of such services in accordance with the VAT treatment that will apply under the Specified Supplies Order after the UK exits the EU.


Businesses providing cross-border supplies of financial services covered by the Specified Supplies Order will benefit significantly from the decision in the event of a no-deal Brexit. However, the decision to extend the current rules on input VAT recovery on specified supplies to all supplies to non-UK customers in the event of a no-deal Brexit may be a temporary one. It is certainly, for the time being, dependent on the UK exiting without a deal. Nevertheless, as a policy decision the Government may find that it is one that is difficult to resile from even if there is eventually a deal and a transitional period before new rules need to be adopted.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.