Abbey ruling: accountants warned not to fall foul of FSA

Accounting professionals working in the fund management industry could fall
foul of FSA regulations if they fail to act on a ground-breaking European Court
of Justice ruling made last week on VAT at UK bank Abbey.

The Investment Management Association, the trade body for the UK’s £2,000bn
asset management industry, is sending letters out to all the accountants
affected by the Abbey case to remind them that the ruling will alter fund values
immediately, and under FSA regulations, the values must be priced according to
the most up-to-date information.

‘The basic rule is to price on information available, a regulatory
principle,’ said Julie Patterson, director of regulation, operations and tax at
the IMA.

The ruling, made in the European Court of Justice, decided that the scope of
VAT exemption for fund management extended to the administrative services bought
from external providers.

The decision is expected to cost HM Revenue & Customs millions of pounds
to refund the fund management industry the VAT it overpaid, money which should
have a small positive effect on the value of individual funds.

Patterson said that, even though the alterations to fund values were ‘nowhere
near’ reaching an error rate that would lead the FSA to intervene, accounting
professionals still have a duty to price their funds based on current
information, or risk the error worsening.

HMRC is preparing a brief on its position in relation to the ECJ, and is
expected to release its findings in the next few weeks.

Deloitte VAT director Pauline Hawkes said that a meeting to be held today in
Brussels, looking at the future of the financial service and insurance
industries, would consider increasing the scope of VAT exemptions.

‘The European Commission has outlined a number of options, including widening
the scope of exemption. And the ECJ has indicated the scope must be consistent
[across Europe],’ said Hawkes.

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