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Home > Investments > Economic Indicators

VAT ruling ‘bad for discretionary clients’

Advisers caution VAT ruling could make discretionary services ‘less advantageous’.

By Bradley Gerrard | Published Jul 23, 2012 | comments

Last week’s European ruling that discretionary fund management (DFM) services must levy VAT is bad news for investors, advisers have said.

The European Court of Justice (ECJ) ruled that Deutsche Bank was not exempt from charging VAT on its services, in a battle between the bank and German tax office Finanzamt Frankfurt am Main.

Following the announcement, HM Revenue & Customs (HMRC) said it would review the details of the judgment to determine “whether it has any implications for the current UK VAT treatment of investment management services”, adding it would “issue further guidance shortly.”

Alistair Cunningham, director of Wingate Financial Planning, said part of his due diligence process entailed keeping on top of the fees being charged by DFMs and that this ruling, if it resulted in increased costs of using a DFM service, could be a “disincentive” to invest at all.

“They [DFMs] are a pretty costly option and this may make them more costly and less advantageous for our clients,” he said.

Matthew Rich, IFA at Alan Seward Financial Services, said the impact would depend on how much the cost of using a DFM rose as a result of the ruling.

He added he expected DFMs would be charging VAT on at least 80 per cent of their services, meaning the addition of VAT on the remaining 20 per cent of the service would not be too onerous.

“However, it is a potential worry and we will know more once the maths have been done,” he said.

“It is hard to gauge the effect now but DFMs are coming under pressure in terms of what they are doing for the costs and charges that are applied. “This ruling is adding to that but we will need to see on a case-by-case basis the impact.”

However, Richard Green, IFA at West Country Financial, said for wealthy clients a marginal increase in VAT would not be a major issue.

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