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HM Revenue and Customs Brief 3/17 - VAT - treatment of pension fund management services


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Updated 20 November 2017

Purpose of this brief

This brief announces a change in HM Revenue and Customs (HMRC) policy about the VAT treatment of pension fund management services provided by regulated insurance companies.


This Revenue and Customs brief is primarily aimed at:

  • pension fund managers and administrators
  • insurers and other pension providers
  • pension scheme trustees
  • tax advisers


HMRC policy has allowed all pension fund management services provided by regulated insurance companies to be exempt from VAT. This treatment arises from the UKís original application of the insurance exemption to all of an insurerís regulated insurance activities, including the management of pension funds.

Following the Court of Justice of the European Union (CJEU) judgement in Card Protection Plan (CPP), UK law was amended from 1 January 2005 to remove any link between an insurerís regulatory status and the entitlement to VAT exemption on its supplies. The judgement in CPP makes it clear that the EU insurance exemption applies only to the underwriting of risk and doesnít apply to other supplies made by insurers.

However, UK policy continued to allow insurers to exempt their supplies of pension fund management services. The initial retention of this policy followed from an earlier HMRC consultation entitled ĎConsultation on the VAT Treatment of Pension Fund Managementí which was published in November 2002. The responses to this consultation were inconclusive, and, as a result, the then government announced that it wouldnít make any immediate changes to the VAT treatment of fund management services, but would keep the issue under review.

Since then, this treatment has been reviewed regularly and maintained, reflecting the ongoing uncertainty concerning the current and future treatment of pension fund management services. Initially this uncertainty arose from the EU Commissionís review of the VAT treatment of financial services which began in 2006, and which created an expectation that it would result in a future exemption for all pension fund management services. However, after several years of discussion, the EU Commission withdrew its proposal in its 2016 Work Programme, as no agreement appeared likely. Continuing CJEU litigation in this area has created further uncertainty.

The CJEU judgement in ATP Pension Services

In ATP Pension Services (C-464/12) (ATP), the CJEU found that a pension fund which pooled investments from a number of defined contribution occupational pension schemes qualified as a special investment fund (SIF) for the purposes of the VAT exemption for fund management services.

This case specifically concerned defined contribution (otherwise known as money purchase) pensions and didnít concern the VAT treatment of services supplied in connection with defined benefit pensions. Services supplied in connection with defined benefit pensions schemes were found by the CJEU in Wheels Common Investment Fund Trustees and Others (C-424/11) to fall outside the fund management exemption on the basis that the investment fund (which pools the assets of such a scheme) wasnít a SIF.

Prior to the judgement in ATP, HMRC didnít consider pension funds of any kind to be SIFs, and therefore treated services provided in connection with all types of pension fund as falling outside the specific VAT exemption for the management of SIFs. In light of the ATP judgement, HMRC now accepts that pension funds that have all of the required characteristics are SIFs for the purposes of the fund management exemption, so that the services of managing and administering those funds are, and always have been, exempt from VAT. Pension funds that donít have all those characteristics arenít SIFs and so arenít within the scope of the exemption.

You can find more information on the application of the exemption for the management of SIFs in the HMRC VAT Finance Manual.

Changes to UK policy

The relevant court cases on this issue have now concluded, and it is now clear that there will be no further review of the EU rules in this area before the UK exits the EU. In light of this, it is appropriate that HMRC now updates its policy to reflect the settled case law. Consequently, the policy of allowing insurers to treat their supplies of non-SIF pension fund management services as VAT exempt insurance is to be discontinued. This policy change will apply from 1 April 2019.

HMRC understands, however, that the great majority of pension fund management services provided by insurers are supplied for defined contribution pension funds and therefore qualify (and have always qualified) for exemption as SIFs following the judgement in ATP.

About the Author

© Crown Copyright 2017.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.

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Article Published/Sorted/Amended on Scopulus 2017-11-21 00:00:00 in Tax Articles

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