Alliance Trust savers wrongly charged VAT

Alliance Trust was a pioneer in the world of investment shops. When rivals were taking substantial charges from funds, unknown to most investors, of around 0.75pc a year, the Dundee-based firm opted to charge a flat fee for holding investments rather than slicing money off portfolios. This has been particularly advantageous for savers with large portfolios.

Alliance, which has around 60,000 customers, said no explicit rules were in place requiring VAT to be applied. Other investment shops that apply flat fees, such as Interactive Investor, have chosen not to apply VAT.

Alliance said it would not be trying to reclaim the money on behalf of savers.

Patrick Mill, managing director, said: “The guidance we received from the Revenue suggested to us that as we were providing an administration service our customers needed to pay VAT. The Revenue has now made it clear that Isa savers do not need to pay the tax, as we are instead offering a custody service.

“As we feel that we operated in the spirit of the guidance we will not be asking HMRC to return the tax to our customers.” The firm said the VAT would be removed from charges from May 1, reducing the cost for an Isa customer from £90 to £75 a year.

Alliance Trust increased its Isa charge at the start of the year. Investors previously paid £48 a year. It has promised to freeze costs until 2016. VAT will still apply on Sipps.

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