Is there VAT on bank charges?
There is no VAT on bank charges because financial services are exempt from VAT. Banks do not charge VAT on transaction fees, service fees or the use of your current account. So you cannot reclaim this VAT in your tax return because there is simply no VAT present. This makes processing easier because bank charges do not belong in your VAT return. You only process them in your profit calculation. The exemption applies to all services directly related to payments. This keeps your VAT administration clear.
Are bank charges deductible?
Bank charges are business expenses when you incur them for your business. You can deduct these costs from your profit, which means you pay less income tax. This applies to expenses such as monthly subscription fees, per-transaction fees or service fees of your account. These expenses are fully deductible because they do not include a private part when you use a business account. If you use a private account then it becomes more difficult to determine the business part. This is why many entrepreneurs opt for a separate business account so that all expenses are clearly allocable.
Booking bank charges in your accounts
You enter bank costs in your accounts without VAT, because these costs are VAT-exempt. In your accounting software, choose the cost item bank charges or a similar category and select ‘no VAT’ or ‘VAT-exempt’, so that no VAT is reclaimed. If you book manually, you process the costs in the general ledger account for bank costs. You record bank charges directly as business expenses in the year of payment. Check your bank statements monthly, as bank charges are often automatically debited and therefore easily overlooked. This keeps your records correct and complete.
VAT exemption for payment transactions explained
The VAT exemption for payment transactions means that services such as transfers, direct debits and managing payment accounts are not subject to VAT. These services belong to financial transactions that the tax authorities have exempted. As a result, banks do not charge VAT and therefore you cannot include them in your VAT return. The exemption also applies to savings account transactions and currency exchange. Exceptions do exist. Renting an ATM does not fall under this exemption, which means it is subject to VAT. You can deduct this VAT if you are liable for VAT. So always check your invoices so you know which costs are exempt and which contain VAT.
