Treasury

I am today publishing the Government’s response to the consultation on the VAT treatment of fund management services that was launched in December 2022 and closed on 3 February 2023.

The consultation set out how the Government intended to achieve the twin aims of: (i) improving policy clarity and certainty for all stakeholders on the application of the VAT exemption for fund management services; and (ii) removing reliance on retained EU law.

The Government have fully considered the consultation responses and the outcomes of additional stakeholder discussions.

The response document sets out that businesses will not be able to rely on direct effect of EU law after 31 December 2023 when the Retained EU Law (Revocation and Reform) Act 2023 comes into effect. The VAT exemption for the management services of those funds listed under items 9 and 10 of group 5 in schedule 9 to the VAT Act 1994 will remain in place. This approach is in line with respondents’ views, and meets the stated aims of providing clarity, certainty and simplicity.

His Majesty’s Revenue and Customs will issue updated guidance to reflect this change in the coming months. The Government will continue engaging with interested businesses.

The Government thank respondents to this consultation for taking the time to share their views.

The consultation response can be found at https://www.gov.uk/government/consultations/vat-treatment-of-fund-management-consultation.

[HCWS128]

My noble Friend Baroness Vere of Norbiton, the Treasury Minister in the House of Lords, has today made the following written ministerial statement.

Today the Government have laid the Money Laundering and Terrorist Financing (Amendment) Regulations 2023 (SI 2023/1371), a statutory instrument to amend the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (“the regulations”) in relation to the treatment of politically exposed persons (PEPs) who are entrusted with prominent public functions by the UK (known as “domestic PEPs”).

The amendment makes clear that under the regulations the starting point for banks and other regulated firms in their treatment of domestic PEPs, or a family member or known close associate of a domestic PEP, must be to treat them as inherently lower risk than non-domestic PEPs. Accordingly, regulated firms must apply a lower level of enhanced due diligence to domestic PEPs compared to non-domestic PEPs, unless other risk factors are present.

The Government are making this change in order to ensure that banks and other regulated firms take a proportionate and risk-based approach to the treatment of domestic PEPs, in line with the Government’s broader approach to anti-money laundering and counter-terrorism financing (AML/CTF) controls. While the new requirements have featured for some time in Financial Conduct Authority guidance on the treatment of PEPs, legitimate concerns continue to be raised that a number of holders of prominent public positions have encountered problems accessing financial services due to their status as politically exposed persons under the regulations, as have their family members. Often, this takes the form of potentially disproportionate or overly frequent requests for information about personal financial matters and affects both PEPs themselves and family members or close associates. The Government are fully committed to tackling money laundering, terrorist financing and corruption, but they will always work to ensure this is done in a proportionate, risk-based way that avoids undue burdens on law-abiding citizens.