Practical application of the VAT exemption for fund management
Produced in partnership with Martin Shah and Gary Barnett of Simmons & Simmons LLP
Practical application of the VAT exemption for fund management

The following Tax guidance note Produced in partnership with Martin Shah and Gary Barnett of Simmons & Simmons LLP provides comprehensive and up to date legal information covering:

  • Practical application of the VAT exemption for fund management
  • The VAT exemption for financial services
  • The exemption for fund management
  • Are the services ‘management’?
  • Am I managing a ‘special investment fund’?
  • Practical application of the item 9 exemption
  • Practical application of the item 10 exemption
  • Can a fund manager recover input VAT?

The VAT exemption for financial services

The UK VAT exemption for financial services is based on the relevant provisions of Council Directive 2006/112/EC (the VAT Directive). These have been enacted into UK law by Schedule 9, group 5 to the Value Added Tax Act 1994 (VATA 1994), which sets out a number of items falling within the exemption.

This Practice Note provides an overview of a number of practical considerations relating to the VAT exemption for the management of special investment funds (items 9 and 10 of group 5).

For more details on the specific definitions and requirements of this exemption, see Practice Note: VAT exemption for fund management.

The exemption for fund management

Investment management is generally a non-monetary financial service subject to VAT. Indeed, Article 135(1)(f) of the VAT Directive precludes exemption for the management of shares and other securities.

However, Article 135(1)(g) provides that Member States shall exempt ‘the management of special investment funds as defined by Member States’.

Article 135(1)(g) has been enacted into UK law by items 9 and 10 of group 5 of Schedule 9 to VATA 1994. There have been a number of changes to these provisions over recent years in light of case law challenges to the scope of VAT exemption and regulatory developments.

The availability of this exemption is critical for investment funds as