The Institute of Chartered Accountants in England and Wales (ICAEW) note that HMRC are sending 'One-to-many' e-mails to the Private Equity businesses reminding them of their VAT accounting procedures. The e-mails highlight the importance of following HMRC’s industry specific guidance at PE79000.
HMRC's VAT Partial Exemption Guidance outlines procedures and concerns for specific trade sectors including policy regarding the VAT treatment of the supplies made by entities involved in the private equity and venture capital sectors.
HMRC identify several main risks for the sector:
- Correct determination of whether there is a right to deduct input tax on the disposal of shares at the exit of the investment.
- Partial exemption methods which do not give a fair and reasonable attribution of input tax to supplies which carry a right to deduct.
- Failure to account for the reverse charge where due – see vatposs14000 and vgroups01350.
The guidance warns that a key concern in this sector is the extent to which a Private Equity House (PEH) VAT Group’s outputs are supplies for consideration made in the UK.
Apart from reverse charge liabilities, the main outputs of a PEH VAT Group will be directors, management, and financial services provided to the investee company. Where these are supplied for a consideration and the Place of supply of the services is the UK, these supplies will fall within the scope of UK VAT.
According to the Institute of Chartered Accountants in England and Wales (ICAEW), which has seen the e-mails, HMRC also set out steps that businesses might take if they feel they are falling short of the PE79000 guidance.
Useful guides on this topic
Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?
Place of supply: Services
The Place Of Supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.
Reverse charge: Cross-border services
A UK business may be required to operate the reverse charge on services it receives from abroad.
Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of shares or securities in a company
When can you claim Business Asset Disposal Relief (BADR) on a share sale? What is the rate of Business Asset Disposal Relief (Entrepreneurs' Relief)? How do you claim BADR? What case law is there on BADR?
External links
PE79000 - Guidance for specific trade sectors: Private equity and venture capital