A proposal by the UK Financial Services Authority (FSA) to reclassify financial services as 'business services' may cost fund managers £150 million per year in VAT (Value Added Tax) bills.
At present, financial services are exempt from VAT, though according to a report by investment bank Morgan Stanley, the FSA's proposals may have the (presumably unintended) consequence of leaving the fund industry liable for the tax which could result in fund managers paying up to £150 million in extra taxation, the bank estimates.
Though the proposal is by no means certain to be implemented at this point in time, it will inevitably lead to fears within the UK financial sector of an exodus of funds from London, eroding the City's status as the financial capital of Europe.
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