Management of investments, portfolios, funds, ‘wrapper’ products and related services: VAT exemption for the management of open-ended collective investment schemes: ‘actively marketed’
Funds/sub-funds (i.e. single or umbrella schemes/sub-funds of umbrella schemes) are marketed to the general public (retail market) either directly or through retail market intermediaries such as fund platforms or ‘supermarkets’, IFAs, retail client stockbrokers and retail banks. A distinction is necessary here between retail investors and institutional investors such as fund of fund investment operators, pension schemes, investment companies, insurance companies, brokerage or large corporates.
We recognise that the question of whether or not a fund/sub-fund is actively marketed to UK retail investors is potentially complex. Therefore, we intend to adopt a pragmatic approach to this question in order that the ongoing administrative requirements associated with assessing and monitoring are not unduly burdensome for tax payers or HMRC.
In general, activity that is consistent with the active promotion and/or the agreement of new distribution deals in respect of individual funds/sub-funds, with the purpose of raising new assets and attracting new retail investors, will be regarded as ‘active marketing’, including the following:
- Advertisements in UK national, consumer and/or trade press publications, or via various ‘outdoor’ media (e.g. posters), specifically mentioning one or more individual funds/sub-funds.
- As above, but where the publication is via a UK website or other online or digital media. For example, banner advertisements.
- Direct mail packs, specifically mentioning and promoting one or more funds/sub-funds, sent to UK retail investors and/or their advisers, for example authorised independent financial advisers (IFAs).
- Events for UK retail investors and/or their advisers featuring content relating to one or more individual funds/sub-funds. For example, IFA roadshow events.
- Pro-active PR releases issued to UK publications specifically mentioning one or more individual funds/sub-funds.
- Active representation to IFA firms and/or other distributors to add one or more individual funds/sub-funds to their fund panels or available fund links.
In contrast, activity that is not consistent with the above will not be regarded as active marketing, including the following activities:
- Advertising and marketing activity where the materials do not make specific reference to an offshore fund/sub-fund (i.e. brand advertising and promotion).
- Distribution of annual reports and other regulatory reporting requirements to existing UK retail investors.
- Communications to UK retail investors with ongoing holdings or monthly savings plans.
- General references to funds/sub-funds and prices on a promoter’s/distributor’s website, irrespective of whether that site carries transactional links, or on other industry information services, such as the FT fund price pages.
- The provision of general fund information to industry reference services and sites, including fund platform services, irrespective of whether that platform or service carries transactional links.
- Unsolicited PR or media coverage of a fund/sub-fund.
- The listing of an incorporated fund/sub-fund within a promoter’s general information materials such as fund range brochures.
- The awarding of a Fund Rating from one or more of the major UK fund rating agencies (e.g. OBSR; S&P) for one or more individual funds/sub-funds.
Certain information must be provided to UK investors in order for the manager/promoter of a CIS to comply with FSA registration requirements, and also to meet obligations relating to the ‘treating customers fairly’ principle and the ongoing suitability of investments. Such activity is not in itself regarded as active marketing.
Other potential indicators that a fund/sub-fund has been, or has not been, actively marketed to UK small retail investors are:
- Whether or not a fund/sub-fund or share class of a fund/sub-fund has distributor status (for income tax purposes);
- Whether a fund/sub-fund offers a sterling-denominated share class;
However, the key determining factor is the marketing activity undertaken by or on behalf of the fund/manager.
As noted above, for overseas CIS the change in legislation is aimed at the marketing of funds/sub-funds to the general public. Therefore, any active marketing of funds/sub-funds exclusively to institutional investors does not fall within the new rules and they can be considered to fall outside the exemption. Where, however, a fund/sub-fund is actively marketed to both UK retail investors and institutional investors, the management of that fund/sub-fund will fall within the exemption.