PE79150 - Guidance for specific trade sectors: Private equity and venture capital: Key risks

The main risks in this sector for HMRC are:

  • 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

A key concern in this sector is the extent to which a PEH VAT Group’s outputs are supplies for consideration made in the UK. In addition to any reverse charge liabilities, the main outputs of a PEH VAT Group will be director’s, management, and financial services provided to the investee company. Where these are supplied for a consideration and the place of supply of the services (PoSS) is the UK, these supplies will fall within the scope of UK VAT. Further guidance on the PoSS can be found in the VAT Place of Supply of Services manual.

There may be circumstances where the presence of consideration in respect of services provided by the PEH VAT Group may be unclear, for example where the investee company is in difficult financial circumstances. In such cases, if you have any doubts about whether there is consideration present, you should first ask the PEH to explain to you what they think the consideration for the service is. You should then consult the supply and consideration guidance, and, if necessary, seek technical advice (see VATPOLADV), to determine whether consideration is present.

Supplies of financial services which are made in the UK may be exempt – further guidance on these can be found in the HMRC VAT Finance manual.

There may also be instances of PEHs who carry out non-business activities and a need to make an apportionment to determine the proportion of VAT incurred which relates to their business activities. This is covered in PE79400.

If you require further assistance or advice in addition to that set out in this guidance, please contact the Finance Unit of Expertise.