I am seeking some guidance regarding the VAT treatment of a foreign bank expense.
To provide some context, the company is based in the EU and it has a bank account with a bank in the USA. Recently, a $200 fee charged by the USA bank for processing a transaction. The bank did not provide any formal bill or invoice for this fee, though the expense deduction is clearly indicated on the bank statement.
I am keen to understand the appropriate classification of this transaction under VAT rules. Should we consider applying the reverse charge mechanism? Or is it more appropriate to classify this expense as outside the scope of VAT? I would greatly appreciate any insights or guidance on this matter.
I’m not an accountant so I’ll defer to any real accountants who have better suggestions, but it seems to me that the point of the reverse charge process is that it’s a way for you to “charge yourself” (and simultaneously reclaim) the VAT that you would have been charged by the supplier had the transaction happened entirely within the UK. So whether or not it is necessary here would depend on whether this type of charge is one that would attract VAT if it were applied by a UK bank.
Given the whole process is cash-neutral (assuming you’re not partially exempt) I doubt HMRC would care if you applied the RC where it technically shouldn’t be used, they’re probably more bothered the other way round when you fail to use it in a case where you should have.
Bank charges are not VATable in the UK and that also would defer foreign banks without a VAT receipt as they would also be “Outside the Scope”. Of course recover the expense as taxable but not include on a VAT Return. @papoye4730 your post is about a Company in the EU so also check the regulations that apply in the country where the company is registered.
PS Claire Stephens has provided further advice as to VAT arrangements for bank charges which are “Exempt”.
Bear in mind that the input VAT element is only available for reclaiming under the reverse charge if it would be allowed to reclaim if it was a UK supply. Given that UK bank charges are exempt from VAT (not outside the scope) then they are not a taxable supply and so no input VAT can be claimed. Be wary of using reverse charge VAT “just in case”.