The current Finance Bill extends the range of financial services which are defined as VAT- exempt supplies.

Financial services supplied in connection with a wide range of funds will be VAT-exempt as a result of a provision in the current Finance Bill, expected to become law in the course of July. Some fund management services are already exempt, but a European Court of Justice (ECJ) judgement has prompted a change in domestic legislation to widen this category.

The provision, for which HMRC has just published guidance, follows on an ECJ judgment in which ruled on how member states could define the “special investment funds” which were exempt from VAT. Under current UK law, three types of fund are exempt: authorised unit trust schemes (AUTS), open-ended investment companies (OEICs) and trust-based schemes (TBS). The last type is now largely an archaic category and will be removed from the VAT-exemption category as at 1 October 2008. The first two types are both open-ended collective investment schemes (i.e. they have variable capital and the number of shares in issue fluctuates as new shares are issued to new investors and existing investors cash in.)

The significance of the ECJ judgment is that the term “special investment funds” was found to be capable of includingclosed-ended investment funds, such as investment trust companies (i.e. funds with fixed capital and numbers of shares). This does not, of course, in itself place any obligation on the UK to include such funds within its definition of the special investment funds which are to be exempt. However, the judgment also stated that member states had to give regards to the purpose of the VAT-exemption and the principle of fiscal neutrality in deciding which funds should belong in the exempt category. The purpose of the exemption is to facilitate investment, in particular through equality of treatment across funds.

In accordance with the judgment taken as a whole, supplies of management services on closed-ended collective investment funds will be VAT-exempt as from 1 October 2008. These include UK investment trust companies, venture capital trusts, and also similar offshore investment funds whose shares are available for investment by the UK general public under the same conditions.

HMRC’s guidance notes also include a useful reminder of the meaning of the “management” that is VAT-exempt. This is defined as “the management charge or fee which is normally deducted from the assets in the [fund] periodically.” Some legal services associated with, and essential to, the running of the fund may nevertheless not be VAT-exempt – a given example is solicitors’ drafting fees on legal documents essential to the operation of the fund.


Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.