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HMRC internal manual

VAT Finance Manual

Management of investments, portfolios, funds, ‘wrapper’ products and related services: input tax

Once it has been established whether a supply of fund management falls within item 9 or 10, by reference to whether the CIU itself is defined in those items, the normal partial exemption rules apply. Input tax incurred on costs which are used exclusively to make exempt supplies is not deductible. Similarly, input tax attributed to exempt supplies under a partial exemption method is not deductible. It should be noted that services which are exempt under items 9 or 10 are not included in the Specified Supplies Order (SI 1999/3121) which means there is no right to deduct input tax, even if the customer is established outside the EU. For example, fund management services made to a CIS or sub-fund established in the Channel Islands, which is recognised under section 270 of FSMA 2000 and so defined in item 9 do not give rise to a recovery of input tax on related costs.

Fund management services concerning funds which are not defined in items 9 or 10 are subject to UK VAT if the customer of the services (for example the fund) is established in the UK, but are outside the scope of UK VAT and carry a right to deduct if the customer is established outside the UK.