The great VAT giveback

Her Majesty’s Revenue & Customs (HMRC) accepted that fund management of venture capital trusts (VCTs) should have been exempt from VAT since January 1990, and will be liable to make repayments of millions of pounds, according to VAT experts at PKF, an accounting and business advisory firm.
Prior to 2007, HMRC maintained that fund management of closed ended investment vehicles, such as investment trust companies (ICTs) and VCTs, should be subject to VAT. Last year the European Court of Justice ruled that fund management should be exempt during a case with JP Morgan involving investment trust companies. PKF views that this judgment suggests other collective investment schemes should also benefit from the new exempt fund management.
In 2007, HMRC announced that they would change UK law to exempt fund management for ICTS and VCTs going forward with effect from October this year. In July of this year, the department announced that they accept that fund management for VCTs should have been exempt since January 1, 1990.
However, HMRC will limit its liability by applying a three-year cap on claims – meaning that claims will only be met if lodged within three years of the overpayment. However, PFK notes in a client memo that because of the House of Lords’ decision in a case involving media conglomerate Conde Nast earlier this year, HMRC also accepts that they will have to meet claims for overpayments made between January 1, 1990 and December 4, 1996 as long as they are lodged before April next year.
“Any fund manager which has charged VAT to VCTs on fund management can now reclaim that VAT,” said PKF VAT Director Debbie Jennings. “Claims against HMRC can normally only be made by fund managers – but VCTs should be able to then claim a refund from their fund manager. The good news for investors is that this should increase the value of the funds in which they are invested.”
The Association of Investment Companies has estimated that as much as £30 million in back VAT could be refunded as a result of the decision by the HMRC. “The capitulation may also indicate that ultimately HMRC might give in over the fund management of pension funds and the sums of money involved there are even greater,” says Jennings. “The National Association of Pension Funds is taking a case with the pension fund for Ford, Jaguar and Land Rover to the UK VAT Tribunal claiming that pension fund management should be exempt from VAT following the JP Morgan case.”