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Spring Budget 2020: Investment management and financial services - VAT

The government will undertake a review of the UK’s funds regime during 2020. This will cover indirect tax and direct tax, and regulation, and consider the case for policy changes.

Last updated: 11 March 2020

A consultation paper published as part of the Budget will ask whether there are changes that could help to make the UK a more attractive location for companies used by funds to hold assets. The review will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime. 

As announced on 4 March 2020 the government is legislating to clarify when fund management services are exempt from VAT. The Value Added Tax (Finance) Order, SI 2020/209, widens the scope of the fund management exemption to apply to pension funds that meet certain criteria, and removes the requirement for certain funds to invest wholly or mainly in securities for the exemption to apply. This version replaces earlier legislation which was withdrawn to give businesses more time to prepare. The new exemption applies from 1 April 2020. 

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Linda Skilbeck

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Last updated: 11 March 2020

A consultation paper published as part of the Budget will ask whether there are changes that could help to make the UK a more attractive location for companies used by funds to hold assets. The review will also consider the VAT treatment of fund management fees and other aspects of the UK’s funds regime. 

As announced on 4 March 2020 the government is legislating to clarify when fund management services are exempt from VAT. The Value Added Tax (Finance) Order, SI 2020/209, widens the scope of the fund management exemption to apply to pension funds that meet certain criteria, and removes the requirement for certain funds to invest wholly or mainly in securities for the exemption to apply. This version replaces earlier legislation which was withdrawn to give businesses more time to prepare. The new exemption applies from 1 April 2020. 

The only material difference for the fund management exemption from the earlier version is that qualifying pension funds must be established in the UK or EU.

The government is also to set up an industry working group to review how financial services are treated for VAT purposes. This is clearly a review of the position after the end of the transition period following the UK’s exit from the EU. 

What should you do?

Managers of affected UK and EU funds will have to exempt their services from 1 April, and should consider whether they or their funds will bear the additional irrecoverable VAT cost. Managers of non-EU pension funds may continue to treat their services as outside the scope of UK VAT with input tax recovery.

Read more on the Budget here.

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