Management of investments, portfolios, funds, platforms, ‘wrapper’ products and related services: investment platforms
Investment platform providers supply online-based services that are designed to transact, safeguard and administer financial investments online. Some platforms provide services directly to investors whilst others can only be accessed via an adviser or other intermediary. Platforms offer a single view of the client’s investment portfolio and provide a convenient channel through which investments can be aggregated; i.e. the bulk execution of equity orders when the intent is to buy and sell the same equity for multiple clients. This enables investments to be transacted and administered more efficiently.
Activities usually undertaken by investment platforms include the following:
- Providing access to a wide variety of retail investment products, including collective investment schemes, personal pension schemes, ISAs and other wrapper products, stocks, shares, gilts and insurance funds
- Receiving, transmitting and executing orders for transacting in those investments on behalf of clients,
- The safekeeping and administration of clients’ assets,
- Acting as nominee (and therefore legal owner) of the securities that are held in trust for the individual investor who remains the beneficial owner,
- For product providers, platforms provide a means of distributing their products.
Some platforms also provide complimentary trading tools such as news feeds, market analysis, investment advisory services and account management functions.
Prior to the FCA’s Retail Distribution Review, one element of the remuneration platform providers generally received was commission in respect of the transactions they effected.
From 6th April, however, platform providers can no longer receive commission payments for new business and will charge platform fees to investors. These will usually be calculated as a percentage of the investments under management although platforms may also charge fixed platform fees. The charging mechanism will not determine the liability of the services provided. For legacy business, commission can continue until 5th April 2016
The primary service the platform supplies in return for such fees (however comprised) are made up of the following functions:
- The aggregation of the investors’ capital to bulk purchase securities in funds and other investment products;
- The recording of the transactions and holdings;
- The holding of the investments in trust as nominee; and
- The disaggregation of the income from the holdings, including realisation of the assets, in accordance with the individual beneficiaries’ investments.
Platform fees charged in respect of these services will be VAT exempt in accordance with Article 135(1)(f) of the VAT Directive as reflected in items 5 and 6 of Schedule 9, Group 5 of VATA 1994, being services related to transactions in securities. Notice 701/49, para 6.5/6.6
The liability of any other services provided by platforms will depend on the nature of the services provided. Separate supplies of advice, information, research and market data services may be liable to VAT at the standard rate. HMRC recognises that some of these services may be provided as part of a composite package. For guidance on whether a service is a single or multiple supply please refer to VATSC80000
Platforms may also provide additional portfolio management services for clients; that is, the provision of ongoing investment management services with a view to improving the performance of the investments held by the platform on behalf of the investor. Portfolio management services are liable to VAT at the standard rate VATFIN5800
All payments to and from the platform generally, but not always, go through the investor’s cash account. This includes all money for investment and investment returns due back to the investor plus any fees or other charges. The cash account is held on the platform and platform fees and any other charges for platform services will be taken from it by the platform provider. The platform will also arrange for payments due to third parties to be taken from the cash account and paid as required - for example, fees due to investment managers, fund managers and financial advisers.
Other types of platforms
For guidance on the VAT treatment of services provided by trading and crowdfunding platform providers/operators, please see the links below.