HM Revenue and Customs Brief 3/17 - VAT - treatment of pension fund management services
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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
This Revenue and Customs brief is primarily aimed at:
- pension fund managers and administrators
- insurers and other pension providers
- pension scheme trustees
- tax advisers
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
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.
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
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.
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.
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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