Are Bank Charges Exempt from VAT? Find Out Now!

Are bank charges really VAT-exempt? Many business owners assume so, but not all fees qualify. Here’s what you need to know to avoid VAT mistakes and unexpected costs.

Key Takeaways

Most bank charges are VAT-exempt, but some specialised services (e.g., cash handling, debt collection) do include VAT at 20% - always check your statements.
VAT cannot be reclaimed on exempt charges, but if a fee includes VAT, it may be recoverable if used for taxable business activities.

Are Bank Charges VAT-Exempt or Not?

In the UK, most bank charges are exempt from Value Added Tax (VAT). This means that when your bank charges fees for standard services like managing current, deposit, or savings accounts, these fees typically do not include VAT.

Here are the common VAT-exempt bank charges:

Account Maintenance Fees: Charges for operating current, deposit, or savings accounts.
Money Transfer Services: Fees for transferring funds between accounts.
Overdraft Fees: Charges applied when there are insufficient funds to cover transactions.
Electronic Banking Services: Fees for online banking services that are equivalent to traditional exempt services.
Loan Interest: Interest charged on loans, advances, or credit facilities.
Credit Card Fees: Annual membership, joining fees, and interest on outstanding balances. However, some credit card-related fees may attract VAT, so businesses should always check VAT on credit card charges when reviewing their statements.

RECOMMENDED READING: Understanding VAT

Which Bank Charges May Include VAT?

Most bank charges are VAT-exempt, but some specialised services do include VAT (20%). Here’s what to watch for:

Cash Handling Services – Fees for cash deposits, withdrawals, and processing (e.g., cash-in-transit services).
Safe Deposit Box Rentals – Charges for renting secure storage space at banks.
Portfolio Management – Fees for managing investments or financial assets.
Debt Collection Services – Charges for recovering unpaid invoices or debts on behalf of a business.
Specialised Cheque Services – Costs for custom-printed or personalised cheques and paying-in books.

How to Check?

Always review your bank statements or ask your bank if VAT applies to any charges before including them in your VAT return. If you use accounting software, make sure you apply the correct bank charges tax code to reflect whether the charge is VAT-exempt or VAT-inclusive. If unsure, check with your accountant to avoid VAT reporting errors.

What We Think

Many business owners assume all bank charges are VAT-free, but that’s not always the case. While most fees don’t include VAT, some specialised services do and this can cause problems if you’re not careful.

Here’s where businesses often go wrong:

❌ Trying to reclaim VAT on exempt charges, which could lead to mistakes on VAT returns.

❌ Missing out on VAT reclaims because they don’t realise some services do include VAT.

❌ Not checking bank statements properly, which can cause errors and potential issues with HMRC.

How JAFA Can Help

VAT mistakes can lead to compliance issues, but JAFA makes it easy to stay on track.

✅ We use AI technology for bookkeeping which helps automatically identify VAT-exempt and VAT-inclusive charges, so you don’t have to.

✅ Accurate VAT returns ensure you only claim VAT where it applies, reducing errors.

✅ Clear financial records help you track expenses without confusion.

✅ Expert support is available if you’re unsure about any bank charges.

Contact our expert accountants based in Birmingham, UK, either by booking a FREE discovery call or calling us on +44 121 227 6277.