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HM Revenue and Customs Brief 22/14 - Pension Fund Management


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Issued 27 May 2014

VAT: CJEU judgment regarding deduction of VAT on pension fund management costs (PPG Holdings BV)

Purpose of this Brief

HM Revenue & Customs (HMRC) issued Revenue and Customs Brief 06/14 (RCB 06/14) to set out its position following the decision of the Court of Justice of the European Union (CJEU) in PPG Holdings BV (C-26/12) (PPG). This Revenue and Customs Brief is being issued to provide an update on HMRC’s position following the CJEU’s decision in ATP Pension Services (C-464/12) (ATP) and to extend the transitional period announced in RCB 06/14.

1.1 Readership

This Revenue and Customs Brief is primarily aimed at:

  • businesses and other taxable entities that provide pension schemes for their employees
  • pension fund management providers
  • pension scheme trustees
  • tax advisers

1.2 Background

PPG concerned an employer’s entitlement to deduct VAT paid on services relating to the administration and management of a defined benefit pension scheme. The CJEU decided that, subject to certain conditions, the employer was entitled to deduct the VAT it paid on services relating to both the administration of its employees’ pensions, and the management of the assets of the pension fund set up to safeguard those pensions in circumstances where the pension fund was a legally and fiscally separate entity. The CJEU left it to the National Court to determine whether those conditions were met in the case of PPG.

Before this decision, HMRC policy had been to allow employers to deduct VAT incurred in relation to the general management costs (the administration) of an occupational pension scheme, but not in relation to the investment management costs, as these latter costs were considered to be costs of the pension scheme itself. In addition, where a single invoice was received covering both the administration of the pension scheme and the management of the investments of the scheme, HMRC policy was to allow the employer to treat 30% of the VAT as relating to the general management of the scheme, and the pension scheme to treat the remaining 70% as relating to the investment management RCB 06/14 announced a change in HMRC policy following PPG. This stated that, subject to certain conditions as set out in the brief, an employer might be able to deduct some VAT incurred in relation to pension fund management/administration which HMRC had previously considered was not so deductible.

In addition, it outlined the process for submitting any claims and provided for a transitional period of six months during which, in specified circumstances, the pension fund and the employer could continue to agree a 70/30 split on the terms set out in VAT Notice 700/17, Funded Pension Schemes.

1.3 Current position

Following the publication of RCB 06/14, HMRC have had extensive discussions with industry representatives on how the new policy will apply. In addition to this, the CJEU has issued its decision in ATP. ATP concerned the VAT treatment of pension scheme administration services provided in relation to a defined contribution occupational pension scheme. The CJEU held that some of the services supplied by ATP could qualify for exemption on the basis that the scheme in that case was a ‘special investment fund’ and that the services in question fell within the definition of ‘management’ for the purposes of the VAT exemption which relates to such funds. It also found that certain services provided by ATP, which involved the movement of payments between parties, could qualify for exemption under a different provision of the finance exemptions as transactions concerning payments.

HMRC are now further reviewing the VAT treatment of pension scheme administration and fund management services to take account of both the PPG and ATP decisions and to consider whether to make any changes to the guidance outlined in Brief 06/14. Further guidance will be issued in the autumn on how both judgments are to be implemented (including a transitional period in which to make any changes). In the meantime, businesses may, if they wish, continue to use the transitional arrangements outlined in the 06/14 Brief.

Any new claims, whether for input tax following PPG or in relation to output tax following ATP, should be sent to:

by post to:
VAT Repayments Team S0483
PO Box 200
L69 9AH

If they have not already done so, businesses that have already made a claim pending the outcome of any of the CJEU litigation concerning the VAT treatment of pension fund management services may wish to provide details of their claim to the email address above.

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© Crown Copyright 2014.

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Article Published/Sorted/Amended on Scopulus 2014-05-29 13:12:10 in Tax Articles

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