The investment industry could expect recovery from HM Revenue & Customs (HMRC) of VAT paid in the past of up to £300m after Association of Investment Companies (AIC) and JP Morgan Claverhouse Investment Trust formally won a lengthy legal test case against HMRC that investment trusts should be exempt from VAT on management expenses.

After HMRC’s withdrawal from AIC’s appeal to the UK VAT Tribunal, HMRC has effectively accepted the European Court of Justice’s judgment of 28 June. The news paves the way for the investment trust industry to press ahead with the recovery of VAT paid in the past as well as a future annual saving to the sector of about £40m a year.

The AIC said it would urge HMRC to pay out the back claims without delay. The AIC expects the government to consult on the changes to the UK VAT law following the victory. AIC said it would be calling on the Government to use this opportunity to extend the VAT exemption to venture capital trusts as well.

Sir Michael Bunbury, JPMorgan Claverhouse Investment Trust chairman, said: 'We are delighted that we have now officially won. JP Morgan Claverhouse suffered £460,000 in irrecoverable VAT last year. In future, this money, together with refunds relating to earlier years, should be available for shareholders. The benefit will compound into the future and further enhance shareholder value.”

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