Under UK VAT law, the management of an authorised unit trust scheme (AUT) and the scheme property of an open-ended investment company (OEIC) (both open-ended funds) are VAT exempt. However, HMRC refused to exempt management services supplied to an investment trust company (ITC) (a close-ended fund) from VAT. The ECJ observed that close-ended funds presented no relevant difference for the purposes of the application of the exemption. As such, an interpretation that exempted the management of open-ended funds from VAT, but not the management of close-ended funds, would violate the principle of fiscal neutrality on which the common system of VAT is based, and which prohibits economic operators carrying out the same transactions being treated differently in relation to VAT levy.

Following the Claverhouse judgment, HMRC has conceded that investment management services supplied to ITCs should be VAT exempt. However, it maintains that the judgment only applies to ITCs. However, the NAPF, having taken professional advice, believes that occupational pension funds also qualify as special investment funds and current UK VAT law violates the principle of fiscal neutrality. As such, the NAPF is urging pension funds to finance a joint legal challenge against HMRC’s current view. This issue would be of particular concern to pension funds which use asset managers to control segregated investments.

View the ECJ judgment

View the NAPF press release