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HM Revenue and Customs Brief 44/14 - VAT on pension fund management services


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Published 25 November 2014

Purpose of this brief

This brief sets out the position of HM Revenue and Customs (HMRC) following the decision of the Court of Justice of the European Union (CJEU) in a Danish case concerning VAT and pension fund management services, 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.

A separate Revenue and Customs brief has been issued that sets out HMRC’s position on the right to deduct VAT charged on services supplied in connection with pension schemes following the CJEU’s decision in PPG Holdings BV (C-26/12 (PPG).

1.1 Readership

This Revenue and Customs brief is primarily aimed at:

  • businesses and other organisations that provide pension schemes for their employees
  • pension fund managers and administrators
  • insurers and other pension providers
  • pension scheme trustees
  • tax advisers

1.2 Background

ATP provided administration services in connection with a pension fund which pooled investments from a number of defined contribution occupational pension schemes. These services consisted of a number of functions aimed primarily at the operation and administration of accounts within the pension fund, including the handling of payments from employers and crediting pension contributions to an individual pension customer’s account.

The Danish referring court asked the CJEU whether the fund administration services supplied by ATP could be viewed as exempt either as:

  • the management of a SIF (under Article 135(1)(g) of the EU VAT Directive)
  • transactions concerning deposit and current accounts or payments and transfers (under Article 135(1)(d) of the EU VAT Directive)

The case specifically concerned defined contribution (otherwise known as money purchase) pensions and did not concern the VAT treatment of services supplied in connection with defined benefit pensions. Services supplied in connection with defined benefit pensions 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/s) was not a SIF.

1.3 Judgment

The CJEU concluded that a pension fund which pooled investments from a number of defined contribution pension schemes could be a SIF so that services supplied to it may be exempt fund management. This includes account administration services, such as those at issue in ATP, as long as they are ‘essential’ for the management of the fund.

The CJEU left it to the referring court to decide whether the services supplied by ATP were exempt transactions concerning payments and transfers but observed that such services may fall within that exemption. For information on the VAT exemption for payment and transfer services see the HMRC guidance manual Finance

1.4 HMRC previous policy

Prior to the CJEU’s judgment in ATP, HMRC did not 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 VAT exemption for fund management services.

1.5 Definition of ‘Special Investment Fund’

In light of the ATP judgment, HMRC now accepts that pension funds that have all of the following characteristics are SIFs for the purposes of the fund management exemption so that the services of managing and administering those funds should be, and always should have been, exempt from VAT:

  • they are solely funded (whether directly or indirectly) by persons to whom the retirement benefit is to be paid (ie the pension customers)
  • the pension customers bear the investment risk
  • the fund contains the pooled contributions of several pension customers
  • the risk borne by the pension customers is spread over a range of securities

In addition to funds that contain the pooled assets of defined contribution occupational pension schemes, such as that at issue in ATP, HMRC accepts that funds that contain the pooled assets of personal pension schemes and that have all of the above characteristics will also fall within the VAT exemption for fund management services.

A personal pension fund will not pool assets if an individual investor exercises an option to give directions as to how their contributions are invested (eg in specific assets and/or funds external to the pension fund) that overrides the investment powers of the trustee/pension provider. HMRC does, however, accept that exemption could still apply to the fund where the costs of managing the assets of those investors who give such directions (ie the non-pooled assets) can be easily identified and excluded from exemption.

In respect of pension schemes that pay members’ contributions into a number of different funds, exemption will only apply to services supplied in connection with funds that possess the characteristics outlined above. Where the contributions of a number of schemes are paid into a single fund, it will be necessary to consider whether that fund as a whole possesses all the characteristics set out above. Both such arrangements may be found in respect of hybrid pension schemes but will also apply in other circumstances.

Where investment management or administration services are supplied to a scheme that has a number of funds, some that posses the characteristics of a SIF and others that do not, to determine the correct VAT treatment of the services in question it will be necessary to apply the rules on single/multiple supplies outlined in HMRC guidance manual Supply and consideration.

1.6 Definition of ‘Management’

Only fund management and administration services that are integral (ie specific and essential) to the operation of a pension fund will qualify for exemption. This may include the ATP type services of administering pension accounts in addition to those investment management and fund administration services that are already recognised as falling within the fund management exemption following Abbey National (C-169/04) and GfBk (C-275/11). In this context, the CJEU in Abbey National previously confirmed that the fund management exemption does not apply to fund supervisory services; and this remains the case.

1.7 Services supplied in respect of other funds

Exemption will only apply to charges made by third parties for services provided in connection with the management or administration of the contributions held in the pension fund itself. It will not apply to services provided in connection with any non-pension funds in which the contributions paid into the pension funds may have been invested; although the management of such funds may qualify for exemption on the basis that the fund is a SIF in its own right (eg an Authorised Unit Trust). The fact that some or all of the costs of managing non-pension funds is being borne by a qualifying pension fund (and ultimately by pension customers) will not bring services supplied in connection with non-qualifying investment funds, and charged to or on to pensions, within the fund management exemption.

1.8 Implementation of the judgment in the UK

UK legislation will be amended in due course to implement the ATP judgment. In the meantime, taxpayers may rely directly on EU law to exempt pension fund management or administration services in accordance with the policy outlined in this Brief.

HMRC is still considering whether the ATP judgment could have wider application and guidance will be issued if there are to be any further changes. In the meantime exemption should be applied in line with HMRC’s current published policy.

1.9 Claims and retrospective action

Businesses that have accounted for VAT on pension fund management services which qualify for exemption in accordance with HMRC’s revised policy as set out in this Brief may, but are not obliged to, claim a refund of any output tax over-accounted for on these supplies - see VAT Notice 700/45 How to correct VAT errors and make adjustments or claims.

Claims are subject to the normal capping rules. Claims will therefore not be considered for periods ending more than 4 years before the date on which the claim is made. In support of claims, businesses must be able to produce evidence to demonstrate that they have accounted for VAT on the relevant services and must be able to substantiate the amount claimed. HMRC will not accept estimated claims.

Subject to the 4-year capping period, any claim should also cover all prescribed accounting periods in which the error occurred. Should a claim not take into account all errors or all affected accounting periods, then HMRC will seek to set-off amounts owed to it for these periods against amounts claimed in other periods.

HMRC may reject all or part of a claim if it takes the view that repayment would unjustly enrich the claimant (as it was not the claimant that bore the burden of the tax in question). More information on ‘unjust enrichment’ can be found at Part 14 of VAT Notice 700/45, referred to above. All claims for overstated or overpaid VAT will be dealt with in accordance with Business Brief 28/04 ‘Correcting liability errors’.

Claims will be dealt with more quickly if they are accompanied by sufficient detail and evidence to enable the examination of each supply that the claimant contends should be exempt. This will include the detail of the services supplied (for example, that they are investment management), the basis upon which the claim is being made, who the supply is made to, what fund/funds the supply relates to and the value of each supply. It should also include details and evidence of whether the fund/s are pension funds (ie funds that only contain the investments of a pension scheme/s), whether the fund/s contain the investments of a defined benefit pension scheme, an occupational defined contribution pension scheme or a personal pension scheme, and of how the fund/s possess the characteristics of a SIF (as outlined above).

All claims resulting from the changes outlined in this Brief should be sent to:


Or by post to:

VAT Repayments Team S0483
PO Box 200
Bootle L69 9AH

HMRC will now consider claims already made by businesses following the ATP judgment that relate to output tax charged on services they have supplied in connection with funds that pool the investments of defined contribution pension schemes and which were clearly identified as such. Businesses that have made other claims for output tax charged on pension fund management services which they think may now be payable in whole or in part in accordance with the terms of this Brief are invited to provide details of the claims to the email address above. HMRC will not be able to consider these claims until such detail is provided.

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Article Published/Sorted/Amended on Scopulus 2014-12-16 10:03:16 in Tax Articles

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