The VAT treatment of fund management in the UK has predominantly derived from the EU VAT Directive 2006/112/EC which contains the exemption for the management of special investment funds ("SIFs"), as defined by member states. The Value Added Tax Act 1994, which implemented the Directive, currently contains and defines the funds for the purposes of the exemption (Schedule 9, Group 5, Items 9 and 10). As there is no definition of a SIF for UK purposes, the current VAT fund management regime is provided for by UK legislation and by retained EU legislation and case law.
The consultation sets out the proposed amendments to the VAT legislation. The changes seek to significantly reduce the administrative burden on all stakeholders by simplifying the decision-making process and reducing the time and resource currently required to identify the VAT liability of a supply of fund management. It also ensures that all relevant laws are within UK statute, removing reliance on EU legislation, case law, general principles and guidance. This approach aims to reduce ambiguity and the scope for differing interpretations of law and case law by providing a stable legal basis on which businesses can operate. It should reduce the amount of litigation which takes place in this area, which is a significant burden for all stakeholders involved.
The government intends for the legislation to contain a clear definition of 'Collective Investment'. This definition of 'Collective Investment' is to mirror the definition provided within the Financial Services and Markets Act 2000. The government also seeks to provide legal clarity and certainty to the SIFs exemption.
The consultation asks for responses on the following questions:
- Do you agree that the proposed approach to refine the UK law covering the VAT treatment of fund management, set out above, achieves its stated aims?
- Do the proposed legislative reforms present any issues for your business?
- Do you currently rely on items 9 and 10 of Group 5, schedule 9 of VATA or exempt any transactions using that law?
- Would the legal definition for 'Collective Investment' in FSMA 2000 meet the intended aim of providing much greater certainty over correct application of the associated qualifying criteria?
- If the answer to 4 is no, how might the government improve the definition to attain that aim?
- Are there any further VAT related modifications the government might introduce under these or future reforms to improve the fund management regime for taxpayers?
The government welcomes contributions from any individual or organisation interested in the VAT treatment of fund management.
The consultation can be found here and will close on 3 February 2022. Responses should be submitted electronically to HMTVATandExcisePolicy@hmtreasury.gov.uk using the provided response template published alongside the consultation.
If you would like any guidance regarding the legislation, VAT or want to respond to the consultation to input any comments on the VAT position please contact James Cashman at James.Cashman@dwf.law or on 07860 259566.