Model Portfolios  

Tatton VAT refund raises questions about charges

Tatton VAT refund raises questions about charges

Industry experts have highlighted issues surrounding VAT exemptions on discretionary fund management charges after HM Revenue and Customs found Tatton’s model portfolios were exempt from this tax.

According to Phil Young, founder of adviser consultancy Zero Support, determining whether VAT is payable on the management of model portfolios is “pointlessly complicated”.

He said it was made harder by the fact HMRC determined this on a case by case basis and based on small details.

This comes after Tatton revealed in its accounts yesterday (June 16) it had received a refund of £1.7m after HMRC agreed with the asset management firm that DFMs supplying model portfolio services were exempt from VAT.

Mr Young said: “There are a number of issues around VAT and both DFM and adviser charges which are pointlessly complicated and out of public sight as HMRC are privately providing individual guidance to firms which turns based on fine detail. 

“Whilst this has arguably always been the case it has devolved into something of a game which benefits nobody other than tax consultants.”

Sheldon Martin, independent financial adviser at MPI: Medical & Professional Investment, recalled another model portfolio that had been declared VAT exempt a few years ago and where the clients directly benefited from the reduction.

He said: "It was confusing at the time because as far as we were aware, no other DFMs offering MPS models were highlighting that they were VAT exempt.

"To be honest, I thought loads would follow suit afterward but they never did."

Tatton told FTAdviser it had not charged its clients VAT, instead covering the costs itself, as it had always thought HMRC would find in its favour.

A spokesperson for Tatton said: “We were always of the view that VAT should not be applied to managed portfolio services.  

“We launched with a market leading fee of 0.15 per cent, we covered the VAT cost from our own revenues until we had clarification on our position from HMRC.  

“Our fee remains one of the lowest in the increasingly competitive MPS landscape and this ruling provides a level playing field with other providers, who have never applied VAT to their service.”

Experts disagreed over whether Tatton should pocket the refund or hand it back to clients, with Mr Young saying the firm should be able to keep it.

But Mr Sheldon said: “Tatton are entitled to keep the money if it was explained to investors as inclusive of any VAT which may be applicable, plenty of businesses operate on that basis. 

“I wouldn’t expect Greggs to refund everyone who bought a hot sausage roll if they won a monumental VAT case against HMRC for that, but as Tatton are an intermediated business advisers will feel entitled to challenge them.”

HMRC did not want to comment on the individual case but FTAdviser understands in order to determine whether VAT is payable on the management of model portfolios, a business would have to determine whether the fund meets the conditions to qualify as a special investment fund.