The Finance Act 2014, enacted last December, has extended certain exemptions from VAT provided to collective investment schemes to defined contribution pension schemes.

What does this mean for you?

It means that the provision of certain ‘management services’ to a qualifying defined contribution scheme is now exempt from VAT.

The exemption is in respect of management services that consist of one or more of the following functions:

  • Investment management
  • Administration:
    • legal and fund management accounting services
    • customer inquiries
    • valuation and pricing (including tax returns)
    • regulatory compliance monitoring
    • maintenance of unit holder register
    • distribution of income
    • unit issues and redemptions
    • contract settlements (including certificate dispatch)
    • record keeping
  • Marketing.

These functions are fund oriented, so some interpretation is required to map them to a defined contribution pension scheme. The function must be supplied by the person who has responsibility for it in respect of the scheme.

Does this change apply to all defined contribution pension schemes?

No, it applies only to:

  • defined contribution schemes within the slightly restrictive definition in the Pensions Act
  • which are not one member arrangements (as the majority of small self-administered schemes are).

What should I do?

If you are a service provider, you must ensure that you are applying the correct rate of VAT to your invoices for management services supplied to defined contribution pension schemes.

If you are a trustee, you should ensure that you are being charged the correct rate of VAT on fees paid by you for management services.

As the legislation is based on a recent European Court of Justice ruling, you should also consider requesting your investment managers and other service providers to submit a refund claim in respect of any VAT charged on management services supplied to the defined contribution pension scheme over the past four years.