Ask an expert: VAT issues on the ring fencing of a bank’s retail business

Question

My client is a medium size full service bank operating in the UK. Through discussions with the UK regulatory authorities it is has become clear that the bank will be impacted by the provisions regarding the ring fencing of its retail banking operation. My client intends to do this through the establishment of a separate legal entity which will contain only the activities permissible within the ring fence. It is concerned about rumours that it will also have to disband its current VAT group to meet the regulatory requirement. Can you clarify on what basis this arises?

Answer

This is a problem which is causing increasing concern within the banking industry....