InvestmentsMay 15 2013

Deadline looming for trusts to reclaim VAT millions

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ByMichael Trudeau

Fund managers of investment trusts and venture capital trusts have a narrow window of opportunity to claim back VAT payments worth potentially hundreds of millions of pounds.

The six-year deadline for claims relating to VAT that was erroneously paid by fund managers on behalf of trusts they managed comes up at the end of next month, following landmark victory by JP Morgan in June 2007.

According to one law firm, the unclaimed VAT could amount to “hundreds of millions of pounds”.

Previously, investment services provided by managers on behalf of investment trusts and VCTs was subject to VAT, which would be paid directly by the fund manager on behalf of clients.

Because the fund manager would pay VAT on services provided by third parties, for example outsourced administration service providers, they would only have to pay HM Revenue and Customs the remaining balance to avoid the same money being taxed twice.

However, a court decision involving JP Morgan six years ago meant such investment activity was not actually subject to VAT.

Although the VAT paid directly by fund managers was reclaimed, it has until recently been impossible to reclaim the VAT paid via third parties.

According to law firm Berwin Leighton Paisner, a more recent court decision means fund managers can claim VAT paid to third parties directly from HMRC on behalf of their clients.

The JP Morgan decision was given on 27 June 2007, meaning the six-year deadline for action is 27 June 2013.

Berwin Leighton Paisner could not provide a specific figure, but it claimed there could be hundreds of millions of pounds’ worth of VAT to be claimed back.

HMRC confirmed that such payments could be reclaimed, but it said this was only possible if the manager could prove that any “improperly charged VAT” had previously been “passed on to their customers”.

A spokesperson for HMRC said: “Where HMRC is satisfied that fund manager claimants have, in economic terms, passed on the improperly charged VAT to their customers, statutory claims made to HMRC under the Value Added Tax Act 1994 can be paid to the fund manager (and only to the fund manager), but only if the fund manager agrees to use the reimbursement arrangements to pass the payment received from HMRC on to the investment trust companies.

“This is entirely a choice for the claimant (the fund managers). If the claimant would be unjustly enriched by payment of his claim and he chooses not to use them, he will not be paid at all and HMRC will not make any payment to any other person, including the investment trust companies.”