Business Briefs 43/2014 and 44/2014 concern the VAT treatment of various costs linked to pensions funds. They follow two judgments of the Court of Justice of the European Union (CJEU).
Business Brief 44/2014 concerns ATP Pension Service A/S v Skatteministeriet1 which dealt with the treatment of VAT attributable to pension fund management services. The CJEU concluded 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. Prior to the CJEU’s judgment, HMRC did not treat pension funds of any kind as SIFs and viewed supplies provided in connection with those services as outside the VAT exemption for fund management services.
HMRC now accepts that occupational and personal pension funds with the following characteristics qualify for the SIF exemption:
- solely funded (whether directly or indirectly) by persons to whom the retirement benefit is to be paid
- the customer bears the investment risk
- the fund contains the pooled contributions of several pension customers
- the risk is spread over a range of securities.
The Brief provides more detail on the precise nature of the characteristics, however, businesses which now find they have over-accounted for VAT on pension fund management services may be able to reclaim VAT from HMRC.
Business Brief 43/2014 follows Fiscale Eenheid PPG Holdings BV cs te Hoogezand2 (PPG), which dealt with employers’ entitlement to deduct VAT paid on services relating to the administration of defined benefit pension schemes and the management of their assets. HMRC’s policy had been to distinguish between costs incurred in relation to the setting up and day-to-day administration of occupational pension schemes, and investment management relating to the assets of occupational pension schemes.
HMRC had allowed employers to deduct VAT incurred in relation to the administration of an occupational pension scheme on the basis that these costs were overheads of the employer and thus had a direct and immediate link to the employer’s business activities. As to investment management costs, HMRC took the view that these costs related solely to the activities of the pension scheme and were deductible only by the scheme. Where the costs were mixed, HMRC applied a split attribution of 30% to the business and 70% to the scheme.
Following PPG, HMRC’s policy has changed and it now agrees that there are circumstances where employers may be able to claim input tax in relation to pension schemes where they could not do so previously. If it can be demonstrated that the relevant services are supplied to the employer, input tax may be deducted. The question of whether services are so supplied is fact sensitive and HMRC indicates that it will not accept that VAT incurred in relation to a pension scheme is deductible by an employer unless there is “contemporaneous evidence that the services are provided to the employer and, in particular, the employer is a party to the contract for those services and has paid for them”. The Brief provides more details, however, once again, there are likely to be instances where businesses find they have overpaid VAT and are entitled to a refund.
Claims for the recovery of VAT paid but not due are time limited so it is important to consider whether your business has a claim without delay. If you have any questions on this please contact us.