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Fund management
On 27 November 2002, Customs issued a consultation document to canvass views on the VAT treatment of fund management, particularly pension fund management, and to establish the costs and benefits of reform. This was in response to the Sandler Report on 'Long Term Savings', which recommended a levelling of the VAT playing field between insurers and others for pension fund management and between the management of investment trusts and the management of authorised unit trusts and open-ended investment companies.
Fund management
On 27 November 2002, Customs issued a consultation document to canvass views on the VAT treatment of fund management, particularly pension fund management, and to establish the costs and benefits of reform. This was in response to the Sandler Report on 'Long Term Savings', which recommended a levelling of the VAT playing field between insurers and others for pension fund management and between the management of investment trusts and the management of authorised unit trusts and open-ended investment companies.
The Government is keen to establish a clearer picture of how the current VAT treatment impacts on the fund management industries, whether it is widely perceived to be a problem, and to obtain views about the best means of achieving greater consistency. The closing date for responses is 31 January 2003.
If, after the consultation, any services currently liable to VAT are to become exempt, the Government will bring forward anti-forestalling legislation to prevent businesses from artificially getting the benefit of VAT exemption while still recovering VAT on inputs related to the newly exempted supplies.
The consultation document is being issued automatically to key pension and fund management trade bodies and associations. Other interested parties can obtain copies of the paper from: HM Customs and Excise, VAT Commercial Division (Tax Projects), New Kings Beam House, 22 Upper Ground, London SE1 9PY, or e-mail olaniyi.palmer@hmce.gsi.gov.uk. It is also available on Customs' website www.hmce.gov.uk/forms/budgetnotices/pbr-2002.htm
(Source: Customs Business Brief 31/2002 dated 29 November 2002.)
New freehold buildings
When the freehold in land or a building is sold, any VAT due must generally be accounted for at the time of the grant of the freehold. When the full value of the supply is not known, a special rule allows VAT to be accounted for when the undetermined part of the consideration is received, thus avoiding the need to estimate the final value of the supply at the time of the sale.
However, Customs believe that the rule has been used as an avoidance device to enable partly exempt businesses to recover excessive amounts of input tax on new buildings which are primarily to be used for VAT exempt purposes. They have therefore amended the rule to block this possibility. The changes only affect freehold sales of new or partly constructed buildings (except dwellings, residential buildings and some buildings used by charities), or of land on which the seller intends to construct a building. A building is new until three years after completion of construction.
Most sellers can still use the special rule, but in order to do so will have to opt to tax the building concerned, so that all payments arising from the grant of the freehold are taxable. An anti-avoidance test will prevent the special rule being used at all where supplies are arranged between related parties to reduce VAT payable on buildings intended for exempt use. The test is the same as the one that already exists in the option to tax legislation, except that it is not restricted to land and buildings which are capital items for the purposes of the capital goods scheme.
The relevant law is Regulation 84(2), Value Added Tax Regulations 1995 (SI 1995/2518) which is amended with effect from 28 November 2002 (see The Value Added Tax (Amendment)(No 3) Regulations 2002 (SI 2002/2918)). The changes affect supplies arising from grants or assignments of freeholds made on or after that date.
(Source: Customs Business Brief 31/2002 dated 29 November 2002.)
