GfC 20 explains that, for a supply of services by a third party to a fund manager to be exempt from VAT, the following conditions must be met:

• Condition one: the fund must be a qualifying fund within the meaning of items 9 or 10 of Group 5, Schedule 9 to the Value Added Tax Act 1994 (see also HMRC's guidance at VATFIN5000). It is noted that, for VAT exemption to apply, "the supply must be made solely in respect of qualifying funds to be an exempt supply" (emphasis added). 
• Condition two: "viewed broadly”, the services “form a distinct whole” and are “specific to, and essential for, the management of that qualifying fund". 

Single or multiple supplies

It is common for fund managers to enter into a master services agreement (MSA), or similar overarching contract, with the third party, in which case it may be necessary to determine whether there is a single supply or multiple supplies of management services.

GfC 20 explains that "the existence of a single contract is not by itself determinative" and that "the key consideration is whether, taken together, the management services provided under the MSA form a single indivisible supply which it would be artificial to split". 

Indicators of multiple supplies

GfC 20 provides a summary of HMRC’s approach to single and multiple supplies, including topic-specific guidance on the following "indicators" that may help to determine whether a supply has multiple elements:

• Number of suppliers. Supplies made by two separate legal entities cannot normally be treated as a single supply.  
• View of the typical consumer. Would a typical consumer consider that they are buying two or more distinct and independent supplies?
• Contractual position and the economic reality. Although the contract is the starting point, it is also necessary to consider the economic reality of how the services are supplied.
• Intention of the legislation. The arrangement should not extend the scope of a relief or exemption.

In applying the indicators, HMRC's guidance is that "if one or more indicators are present then there are likely to be multiple supplies, and if none are present then the likelihood is that there is a single supply."

Next steps

GfC 20 explains how a business can:

• contact HMRC with questions relating to the guidelines; and
• correct a VAT return, where, having read GfC 20, the business believes it has made an error in a VAT return submitted previously. 

Background to the guidelines

GfC were first announced in November 2021, with the intention of providing "HMRC’s view on complex, widely misunderstood or novel risks that can occur across tax regimes". All GfC published to date can be accessed from HMRC's collection page. 

Although there is no requirement to follow the advice given in the guidelines, HMRC says that doing so will help businesses and individuals "to avoid unnecessary contact" from HMRC and "to adopt a lower risk tax strategy, reducing the risk of paying additional tax, interest, and penalties".

HMRC published GfC 8: Help with VAT compliance controls in September 2024. To learn more, listen to ICAEW's The Tax Track podcast.