European Court Ruling may impact Charities VAT position on Investment Management fees

A recent case, in what may be one of the last UK VAT cases to be heard at the Court of Justice of the EU (CJEU), may have a significant impact on UK Charities who have investments and who have recovered any VAT on investment management services in the last 4 years.

In C-316/18 – The Chancellor, Masters and Scholars of the University of Cambridge, the UK Court of Appeal referred a question on whether a charity can treat investment management services as an overhead cost which relates to all of a charity’s activities (with the VAT potentially partially recoverable) or whether it directly related to financial investments (with the VAT not recoverable). In what was a complex case, the final analysis of the Court was that these costs were not an overhead of the charitable activities, but were solely referable to the investment activity which would mean that VAT recovery was not possible.

The case will be referred back the UK Court of Appeal to make the final decision but we expect that HMRC will use this to target charities it believes may have recovered VAT on investment management services and potentially raise assessments.

We would recommend that charities consider whether they are at risk and seek advice immediately as they may be required to submit error declarations to HMRC to avoid potential penalties.  We would hope that HMRC will issue helpful advice but in the interim we recommend that appropriate action is taken.

If you would like to discuss this or are concerned that your charity might be affected please contact Iain Masterton, our VAT Director on 0131 558 5800 or iain.masterton@chiene.co.uk.