HMRC publishes new guidance on VAT treatment of fund management

HMRC has released its long-awaited guidance (Guidance), through its Guidelines for Compliance, on the recommended approach to assessing whether fund management services constitute a single supply, or multiple supplies, for VAT purposes: "Help with VAT on fund management services - GfC20”. This is an important development given its relevance to fund management structures, especially arrangements involving the outsourcing of fund management functions.

What the Guidance covers

The Guidance is aimed at businesses providing or receiving fund management services, including outsourced fund management services, and sets out HMRC's recommended approach to deciding whether such services are single or multiple supplies for UK VAT purposes.

Key points

Where fund management (including fund administration) services are outsourced under a Master Services Agreement (MSA) or similar overarching contract, the key question is whether the services, taken together, form a single indivisible supply that it would be artificial to split — and this turns on commercial and economic reality, not merely the contractual structure.

The Guidance references the CJEU's decision in BlackRock Investment Management (UK) Ltd v HMRC (Case C-231/19), confirming that a single supply of fund management services carries a single VAT liability, so it cannot be apportioned between qualifying (SIF) and non-qualifying (non-SIF) funds — the supply must relate solely to SIFs to benefit from the fund management VAT exemption.

HMRC sets out four non-determinative indicators for distinguishing single from multiple supplies: the number of suppliers involved; the view of a typical consumer; the terms of the contract and economic reality; and the intention of the legislation — no single indicator is decisive, and each case turns on its own facts. If one or more indicators are present then there are likely to be multiple supplies, and if none are present then the likelihood is that there is a single supply.

In practice, HMRC will look at factors such as whether services are commissioned with bespoke decision-making per fund versus as a standardised package, whether the recipient could still operate without receiving all elements from the same supplier, and whether pricing and invoicing are calculated per fund or bundled as a single price.

Why this matters

This Guidance is directly relevant to any provider or recipient of fund management or administration services under an MSA or similar framework, as it signals HMRC's approach to scrutinising whether such arrangements should be treated as a single supply or as multiple supplies at a fund level with different VAT treatments. Structures that rely on high-level MSAs without fund-specific documentation, bespoke pricing, or fund-specific decision-making may be more exposed to challenge as a single, non-exempt supply (or vice versa, depending on the facts). This is particularly important where services are provided under a single contract in relation to both SIFs and non-SIFs.

The examples given in relation to NAV services appear useful: HMRC appears to accept that the same service (NAV calculation) delivered under an MSA can still be treated as multiple supplies where, by its nature, it produces a different output for each fund — for example, a different NAV reflecting each fund's distinct asset mix. A similar logic may arguably extend to other services that are nominally similar but produce a fund-specific output, such as fund accounting or investment management services that take into account the risk profile and other characteristics of the specific fund to which they relate. However, there is still uncertainty as to how this guidance will be applied in practice, and the interpretation is likely to evolve over the coming months as HMRC's approach becomes clearer.

HMRC has published this Guidance as part of its broader Guidelines for Compliance series, which aims to go beyond interpreting the law and set out HMRC's view on its practical application (including best-practice examples), helping taxpayers understand HMRC's expectations. Following the guidelines should therefore also help mitigate exposure to penalties where errors are identified and corrected.

While the guidance focuses specifically on determining whether a supply is single or multiple for VAT purposes, further clarity on what HMRC considers to be supplies "merely physical or technical in nature" — which, per the guidance, do not qualify for exemption — would be welcome. It is to be hoped this will be addressed as part of the wider exercise to rewrite the guidance on VAT and financial services.

Businesses should now consider their current outsourcing arrangements — particularly contractual documentation, pricing structures, and evidence of fund-specific tailoring — against these indicators.