TaxPersonal TaxCustoms faces massive VAT refund bill

Customs faces massive VAT refund bill

Customs & Excise could be forced to refund millions of pounds in VAT payments after a tribunal ruled investment managers should not pay VAT on outsourced services.

And given the enormous cost of outsourced investment management services, the payment Customs would have to make to the unit trust industry could be huge.

The ruling, which followed a landmark case involving Prudential Assurance Co Ltd, was contested by Customs, who said VAT exemption only applied to investment management by the unit trust manager.

However the tribunal said the ruling was too narrow on this point and applied European law, which bases exemption on the type of task being carried out, not who is carrying it out.

The ruling followed a similar line of reasoning used to decide a case between credit card insurer Card Protection Plan and Customs earlier this month. In this case, Customs demanded Pounds 800,000 from CPP in VAT on business services dating from 1989 to 1991.

Five law lords ruled CPP’s principle business was insurance, despite it not underwriting any business itself, and was therefore exempt from paying VAT. In their summary, the Lords said it was the type of business that mattered, rather than the type of company doing it.

Andrew Ball, a partner at Deloitte & Touche said the tribunal’s decision was great news for the unit trust industry.

He said: ‘UK-based trust managers frequently need to outsource investment management. There should now be no VAT cost involved in doing this.’

Links

CPP victory to set VAT case precedent

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