Keen readers will recall the long-running saga of the correct treatment of VAT incurred by employers on pension fund costs. Following rulings by the ECJ, HMRC had determined that it needed to change existing UK practice. In particular, this affected defined benefit schemes where HMRC had allowed employers to recover some, but not all, of the VAT paid on investment managers’ fees. This ran counter to the ECJ’s decision in the PPG case.

In October 2015 we posted that the HMRC had issued an update on progress (or lack of it) in finding a workable solution that would allow employers to continue to recover VAT as input tax. A number of potential problems had been identified with the ideas that were circulating, including the use of tripartite contracts or adding pension fund trustees to the employer’s VAT group. To give everyone more thinking time, HMRC extended the transitional period during which the old practice could be used until December 2016.

Sadly, nearly a year on, it appears that the problems have not been solved. HMRC have today issued a short (brief?) Brief buying themselves, and employers and scheme trustees, more time. The transitional period has been extended to 31 December 2017, with the possibility of a further extension “if necessary” beyond that date. Welcome news, perhaps, but after so much time has been spent trying to find a solution, it does make you wonder whether the only way out of this conundrum would be to ignore the ECJ’s rulings. Brexit anyone?