In December 2022, the government published a consultation on the VAT treatment of fund management services. The consultation proposed to ensure current UK policy is included in UK law. This would establish the VAT liability of fund management without requiring reference to case law and guidance. The aim of the proposal was to provide additional certainty and clarity to taxpayers. 

The proposed approach was to keep the current list of exempt fund types included in Items 9 and 10 of Group 5, Sch 9, Value Added Tax Act 1994. This would ensure continuity of treatment for existing funds. 

Under the proposals, changes would also be made to include criteria in legislation for a fund to be considered a special investment fund (SIF). This is known as a principle-based approach. This would ensure relevant fund management would fall within the exemption, even where the type of fund is not listed in Items 9 and 10. 

HMRC has now published a summary of responses to the consultation alongside a written statement from the Treasury. The responses suggested that the principle-based approach proposed for management of SIFs would cause confusion.  

Furthermore, the government has decided that existing UK VAT legislation covers the vast majority of fund types for which management services should be exempt. It also considers that the current list-based approach provides sufficient legal certainty. On this basis, the government will retain its current approach to this area of legislation. 

The government did note a request from the fund management industry for greater certainty around the definition of ‘management’ of a fund. This will be considered in more detail as part of the review of current guidance.