Having established whether a supply of fund management falls
within item 9 or 10, by reference to whether the CIU itself is
defined in those items, the normal partial exemption rules apply.
Input tax incurred on costs which are used exclusively to make
exempt supplies is not deductible. Similarly, input tax attributed
to exempt supplies under a partial exemption method is not
deductible. It should be noted that services which are exempt under
items 9 or 10 are not included in the Specified Supplies Order (SI
1999/3121) which means there is no right to deduct input tax, even
if the customer is established outside the EU. For example, fund
management services made to a CIS or sub-fund established in the
Channel Islands, which is recognised under section 270 of FSMA 2000
and so defined in item 9, do not give rise to a recovery of input
tax on related costs.
Fund management services concerning funds which are not
defined in items 9 or 10 are subject to UK VAT if the customer of
the services (for example the fund) is established in the UK, but
are outside the scope of UK VAT and carry a right to deduct if the
customer is established outside the UK.
