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HM Revenue and Customs Brief 35/08


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Issued 24 July 2008

VAT exemption for fund management services

At Budget 2008, it was announced that the VAT exemption for fund management services would be amended with effect from 1 October 2008. The amending legislation, explanatory memorandum, and draft guidance have now been published on our website. This Revenue & Customs Brief provides some detail about the amendment and information for businesses wishing to submit claims for overpaid VAT in the light of these changes.


EU VAT law exempts 'the management of special investment funds as defined by Member States'. The UK interpretation of this was challenged and, following the ECJ judgment in JP Morgan Fleming Claverhouse Investment Trust plc, we accepted that closed-ended investment undertakings, such as investment trust companies (ITCs), should be defined for the purposes of the exemption.

The amendment gives effect to this judgment in UK law and, in particular, defines 'closed-ended collective investment undertaking' by reference to certain criteria which must be satisfied. These are that:

  • its sole object is the investment of capital, raised from the public, wholly or mainly in securities
  • it manages its assets on the principle of spreading investment risk
  • all of its ordinary shares (of each class if there is more than one) or equivalent units are included in the official list maintained by the Financial Services Authority pursuant to section 74(1) of the Financial Services and Markets Act 2000 and
  • all of its ordinary shares (of each class if there is more than one) or equivalent units are admitted to trading on a regulated market situated or operating in the United Kingdom

For further details of this, you may wish to refer to the draft guidance.

Claims for overstated or overpaid VAT

Although the amended law comes into effect on 1 October 2008, it represents the situation as it should have been since 1 January 1990 when the exemption was first introduced. There is no requirement to make adjustments in respect of supplies made prior to 1 October 2008. However, businesses which have accounted for VAT on fund management services which qualify for exemption under the amended legislation may wish to submit claims to us for output tax over-accounted for (see VAT Notice 700/45 How to correct VAT errors and make adjustments or claims).

All adjustments or claims are limited to a three-year period (except those that are subject to the recent House of Lords judgments in Michael Fleming (t/a Bodycraft) and Conde Naste Publications Ltd - see Revenue & Customs Brief 07/08). Businesses must be able to produce evidence that they have accounted for VAT on the relevant services and must be able to substantiate the amount claimed. Subject to the three-year limitation period, any claim should also be for all prescribed accounting periods in which the error occurred. Should a claim not take into account all errors or all affected accounting periods, then we will seek to set-off amounts owed to us for these periods against amounts claimed in other periods.

We may reject all or part of a claim if repayment would unjustly enrich the claimant. More details on 'unjust enrichment' can be found at part 14 of VAT Notice 700/45, referred to above. All claims for overstated or overpaid VAT will be dealt with in accordance with our Business Brief 28/04 - 'Correcting liability errors'.

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Crown Copyright 2008.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2008-07-27 12:48:31 in Tax Articles

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