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Portfolio/investment managers’ fees and VAT recovery - court of appeal decision.

The Court of Appeal (COA) released its decision in the Commissioners for HMRC v Chancellor, Masters and Scholars of the University of Cambridge case with regard to the ability of taxpayers to treat the VAT that they incur on investment managers’ fees as partly recoverable.

The Court of Appeal (COA) released its decision in the Commissioners for HMRC v Chancellor, Masters and Scholars of the University of Cambridge case with regard to the ability of taxpayers to treat the VAT that they incur on investment managers’ fees as partly recoverable. 
The University’s case concerned the ability of tax payers to recover a proportion of the VAT they incur on their portfolio or investment managers’ fees. The University had argued that as the investment management fees it incurs are used to generate passive investment income, it should be entitled to recover a proportion of the VAT it incurs as input tax, because the passive investment income is used to support the generality of the University’s activities.
The tax payer’s appeal against HMRC’s refusal to allow VAT recovery of any of the VAT incurred had previously been allowed by both the First-tier and Upper-tier Tribunals (UT). HMRC appealed the UT’s decision, which, following the hearing in December 2017, the COA handed down its decision on 27 March 2018*. 

What should you do?

In the meantime, tax payers should continue to recover a proportion of the VAT that they incur on their portfolio /investment managers’ fees expenditure in the same way as they recover the VAT incurred on their general overhead expenditure. 
 The rationale for that approach is that, until such time as the UT’s decision is overturned , its decision remains the law on this issue and that decision allows tax payers to treat a proportion of the VAT they incur on their portfolio /investment managers’ fees expenditure as partly recoverable. 
 If not already done so, tax payers should confirm with their VAT advisers whether they are entitled to make a claim for input VAT not already recovered, and if they are, they should collate and submit to HMRC, historic claims spanning the last four years, in order to ensure that they are not out of time when the CJEU hands down its decision on the reference. 

Further guidance in the near future?

The outcome of this case continues to be very important because it would mean the difference between endowed tax payers (including grant giving charities) being able to claim, as input tax, the VAT that they incur on their investment management fees. 
 HMRC is not expected to publish any guidance on this case, prior to the CJEU decision being released. However, once the CJEU decision is released, regardless of the outcome, HMRC would be expected to clearly outline their policy on this very important issue.
To discuss this COA decision or other issues surrounding portfolio /investment managers’ fees expenditure and VAT, please get in touch with your usual Buzzacott contact or Thomas Mobee from our VAT consultancy team:
Thomas Mobee
Senior Manager, VAT
T | +44 (0)20 7556 1320
E | mobeet@buzzacott.co.uk
 *Surprisingly, it chose to make a reference for guidance on the matter to the Court of Justice of the European Union (CJEU), as it felt that the question of whether the management fees incurred, in relation to a non-taxable investment activity, could be said to have the necessary link with the economic activities which they subsidise. The COA would be collating the terms of the reference as well as the questions to send to the CJEU in conjunction with the parties.
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