In January, HMRC published an update to its internal manual PE79000, offering comprehensive guidance on VAT partial exemption for businesses operating in the private equity (PE) and venture capital (VC) sectors. This update delves into how HMRC views VAT application in the PE sector and markets. It complements last year’s GfC8 update, which outlined eight key areas HMRC expects businesses to cover in their VAT compliance processes.
PE79000 specifically tackles the VAT treatment of supplies made by entities involved in PE and VC, addressing various aspects of VAT compliance, such as partial exemption rules, input tax recovery and the VAT treatment of different transactions. The January update follows recent UK VAT case law, in the case of Hotel La Tour, which concerned VAT recovery on transaction costs incurred in the sale of a subsidiary company.
The updated PE79000 now covers the following VAT compliance areas:
- Partial Exemption Rules: The update explains how partial exemption rules apply to PE houses. These rules determine how input tax on exempt supplies can be recovered and how taxable supplies are apportioned.
- VAT on Management Fees: PE79000 provides guidance on the VAT treatment of management fees charged by PE houses to their funds. It outlines the conditions under which these fees are subject to VAT and the applicable VAT rates.
- VAT on Investment Transactions: The update covers the VAT implications of investment transactions, such as the acquisition and disposal of investments. It explains how these transactions are treated for VAT purposes and the documentation required to support VAT claims.
- VAT on Fundraising Activities: PE79000 also addresses the VAT treatment of fundraising activities, including the issuance of prospectuses and marketing materials. It provides guidance on how these activities should be accounted for in VAT returns.
- Special Purpose Vehicles (SPVs): The update discusses the VAT treatment of SPVs used in PE transactions. It explains how SPVs are incorporated and how their activities are treated for VAT purposes.
To ensure compliance with the guidance provided in PE79000, PE houses should:
- Conduct Regular Reviews: Regularly review business activities and transactions to identify potential VAT liabilities and ensure accurate reporting.
- Maintain Detailed Records: Keep detailed records of all transactions, including invoices, receipts, and contracts, to support VAT claims and demonstrate compliance.
- Seek Professional Advice: Consult with tax professionals to navigate complex VAT regulations and ensure accurate reporting.
- Implement Compliance Controls: Establish robust compliance controls to monitor VAT obligations and ensure timely and accurate VAT returns.
HMRC Manual PE79000 is an essential guide for PE houses seeking to understand and comply with VAT regulations. HaysMac can assist PE houses in leveraging this updated guidance by conducting thorough reviews of current processes and offering proactive recommendations. These steps will help businesses manage their VAT liabilities efficiently and maintain a stellar reputation with HMRC. Let’s ensure your business stays ahead of the curve and maintains VAT compliance!
Get in touch with Mike Crowson, Director and Head of Private Equity, for advice or support with any of the above.
