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HMRC liable to millions in VAT repayments for VCTs, says PKF

HM Revenue & Customs could be liable to millions of pounds in repayments after ruling that fund management of venture capital trusts should have been exempt from VAT since 1990, says accountants PKF.

Originally, HMRC said that fund management of closed ended investment vehicles such as investment trust companies 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. This sparked industry debate that other collective investment schemes should also benefit from such exemption.

In the 2007 budget, HMRC agreed to exempt fund management for ICTs and VCTs from October 1, 2008. Today, it has announced that fund management of VCTs should have been exempt since January 1, 1990.

HMRC is applying a three year cap on claims which means that they will only be honoured if lodged within three years of the overpayment.
Following an earlier ruling from the House of Lords this year, HMRC says it will also meet claims for overpayments made between January 1, 1990 and December 4, 1996 as long as they are lodged before April 2009.

PKF VAT director Debbie Jennings says: “This is a great result for VCTs and shows that HMRC are applying VAT exemptions too narrowly in certain areas. The good news for investors is that this should increase the value of the funds in which they are invested.

“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. 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.”

A HMRC spokeswoman says: ““Budget 2008 announced that the VAT exemption for fund management services would be amended with effect from 1 October 2008. This gives effect to the judgment in the J P Morgan Claverhouse ECJ case and, in particular, extends exemption to the management of specifically defined closed-ended collective investment undertakings, including Venture Capital Trusts. This is to establish a level playing field for equivalent funds.

The extension will affect all VCTs that meet the criteria laid out in the draft guidance, available on the HMRC website. HMRC estimate that the total amount repayable is only likely to be in the low tens of millions of pounds. Further information about eligibility for and how to make claims of overpaid VAT can be found in Revenue & Customs Brief 35/08”.


Decent thoughts

I have spoken at a number of pension seminars this year and have noticed that when other attendees and speakers talk about the 2012 changes, they often say that it will be the first time that every employee in the country will have a decent company pension.

Normal service will resume

It is clear that Abbey has finally overhauled the mighty HBOS in share of the mortgage market. In happier times, brokers would have been more than pleased to see this happen as it would have meant an injection of competition and a big challenge to the presumed market number one.


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