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

  • VAT exemption for fund management
  • The VAT exemption for financial services
  • Why is the exemption for fund management important?
  • The exemption for fund management
  • What is ‘management’?
  • What is a ‘special investment fund as defined by member states’?

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, Pt II, 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 focuses on the exemptions for services falling within the category of fund management (items 9 and 10 of group 5). The practical application of this exemption is considered in detail in: Practical application of the VAT exemption for fund management.

Why is the exemption for fund management important?

An investment fund will usually be regarded as carrying on an economic activity for VAT purposes. However, the large majority of a fund’s activities are likely to be exempt from VAT or outside the scope of VAT.

Accordingly, where a fund incurs VAT on supplies made to it, including management fees, it is unlikely to be able to recover that VAT, which will, consequently, represent a real cost to the fund. Therefore, the availability of exemption from VAT in respect of management fees is important to prevent irrecoverable VAT arising for a fund.

The exemption for fund management

Investment management is generally a non-monetary financial service subject to