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Adviser wins £260k VAT appeal against HMRC

Bloomsbury Wealth Management has won an appeal to have almost £260,000 in VAT repaid after a tax tribunal ruled the firm was providing services that were exempt from VAT.

Bloomsbury partner Jason Butler has fought the appeal for two years. He applied to HM Revenue & Customs in January 2010 for repayment of VAT totalling £258,592.22 which Bloomsbury said it had accounted for in error between October 1, 2005 and September 30, 2009.

The firm had applied VAT on its advice services but argued it now believed these should have been treated as exempt from VAT. HMRC rejected the claim in July 2010, which Bloomsbury then appealed.

HMRC applied for the appeal to be adjourned pending the outcome of the European Court of Justice Deutsche Bank case, which ruled that VAT should apply to the entire discretionary fund management service. The tribunal rejected the claim.

A hearing held in May set out to establish whether Bloomsbury was providing exempt intermediary services or taxable portfolio management services.

HMRC argued Bloomsbury was introducing clients to collective investment fund managers which it deemed to be a taxable service.

It also submitted that advice and management formed the predominant supply. HMRC cited tables of work carried out by Bloomsbury showing that in relation to a new client, five and a half hours out of 32 related to introducing clients to investment funds, which is exempt. For an existing client, three hours out of 18.5 hours relating to negotiating and buying units.

Bloomsbury argued in response advice was ancillary to introducing clients to fund managers.

In the judgment, tribunal judge Greg Sinfield cited a European Court of Justice case which emphasised the importance of the intention of the customer in determining which services are principal or ancillary.

Sinfield says: “We consider the fact there was no fee for the advice if clients decided not to invest shows it was not the most important part of the service to Bloomsbury or its clients. The evidence showed the focus of Bloomsbury’s services was the creation and maintenance of a portfolio of units for its clients which is an exempt supply of intermediary services.

“In our view, the initial advice was an ancillary service to the principal supply of intermediary services relating to the acquisition, maintenance and disposal of the portfolio of units.”

An HMRC spokesman says: “HMRC is currently reviewing the decision, before deciding whether to appeal. We are also considering the findings in light of the ECJ Deutsche Bank judgment.”


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. John Szymanowski 24th July 2012 at 12:39 pm

    Congratulations to Bloomsbury! Would therefore a portfolio of unit/investment trusts be VAT free?

  2. Larry in London 24th July 2012 at 1:33 pm

    Hello my little darlings!

    So, the upshot of all this, in the context of RDR, is that there will be a fee for advice whether or not the client proceeds, so the whole lot is VATable.

    You have been warned! I hope all you weary travellers in the RDR Garden of Taxation Misery take note.

    Many advisers could be bankrupted by HMRC if they fail to collect the tax they must pay to the Treasury.

    So now IFAs will also be unpaid tax collectors.

    Love and kisses


  3. As the famous saying goes ‘well,here’s another fine mess you got me into’.
    What a bunch of w—kers.
    So just where does VAT apply,does anyone really know?
    By the sound of it NO!!

  4. Exasperated Me 24th July 2012 at 4:57 pm

    Such fun.

    Everything the regulators touch turns to SH*T, but of course it doesn’t stick to them does it?

  5. I applaud Bloomsbury for their determination and ultimate victory but the whole situation is just far too confusing to begin with. Our taxation system is appalling and meant to confuse the people so the powers that be may do as they please.

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