A recent judgment by the European Court of Justice (ECJ) on VAT will boost the UK fund industry, say investment management consultants Etheios.
The European Court of Justice ruled in the Abbey -v- HMRC case that outsourced fund administration services should be exempt from VAT. The ruling has standardised the definition of fund administration across the EU, including transfer agency, fund accounting, and pricing. Another consequence is that depositary services will no longer be exempt from VAT in Luxembourg and Ireland. This is good news for the UK fund industry, where depositary and trustee fees are already liable to VAT, says Etheios.
“This ruling has wide implications as previously the VAT payable on outsourced fund administration effectively encouraged fund managers to carry out administration in-house,” says Mark Seaman, Principal Consultant at Etheios. “Now activities such as transfer agency and fund accounting can be outsourced on a level playing field. This case promises to save the industry millions of pounds a year. However, not all services qualify for exemption. The provision of IT systems, for instance, will not be exempt and consequently, a system provided on a bureau basis to a manager wishing to perform their own administration may still attract VAT. In addition, the exemption of transfer agents and fund administrators’ fees from VAT may mean that they will suffer irrecoverable input tax, so they may increase their fees to compensate. Fund managers need to plan carefully to ensure that they reap the benefits of the ruling. We are working with each of our clients on the implications of this case on their business and are optimistic that with careful planning they can make considerable savings.”
Etheios has clients in wealth management, fund administration, private banking, funds distribution, retail and institutional fund management, life and pensions, transfer agency, and software development and supply. They include Barclays, Credit Suisse, Bank of New York, Barings, DSTi, Equitable Life, First State, Mellon, HBOS, Morley Fund Management and Norwich Union.