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