On 1 October, amendments to the VAT Act 1994 take effect. HMRC originally published the amendments in July, but has made an emergency last-minute change after it realised its original plans would exempt services with minimal UK connections that it had not intended to exclude.

The rules follow an ECJ ruling which brought some closed-ended investment funds within the scope of the VAT exemption in the Principal VAT Directive. ECJ also told EU Member States to check their laws met the purpose of the exemption, which was to facilitate investment in collective investment schemes by excluding VAT.

As a result, the UK has amended the VAT Act to bring within the exemption the management of both open- and closed-ended collective investment schemes (CIS) under certain circumstances.

  • Management of open-ended CIS if they are authorised OEICs, unit trusts, or any of the following entities (when they are not umbrella schemes) or their sub-funds, if they are recognised under FSMA.
    • Gibraltar CIS
    • individually recognised overseas scheme
    • recognised CIS authorised in a designated country or territory
    • recognised CIS consituted in another EEA Member State

But the schemes do not come within the exemption if they are not currently marketed in the UK and either have never been marketed in the UK or less than 5% of their shares are held by or on behalf of UK investors.

  • management of a closed-ended collective investment undertaking that fulfils criteria relating to its investment objectives, investments, UK Listing status and trading of its shares on a regulated market.