§ Mr. MudieTo ask the Chancellor of the Exchequer what VAT liability is applied to arrangement fees charged by a bank to its customers in connection with a debt for equity exchange by that bank.
§ Sir John CopeThe VAT liability of arrangement fees charged by banks depends strictly on the terms of the contracts between the parties. Without further details, it is difficult to be precise about the liability. Arrangement fees charged by the banks in respect of loans or other forms of credit form part of the consideration for the loan, an exempt supply. Moreover, where a borrower issues shares in return for loan capital, any arrangement fee would also be exempt from VAT. In either case, any associated VAT incurred by the bank would not be recoverable.