The High Court has determined that investment management services supplied to a defined benefit pension scheme by a company which was not authorised to conduct insurance business were subject to VAT.
The claimants in this case were the trustees of a defined benefit pension scheme and the former trustee of a collective investment fund in which the assets of the pension scheme were invested. The claimants received pension fund management services from various investment managers, including entities authorised to conduct insurance business ("Insurers") and entities not so authorised ("Non-Insurers"). Pursuant to the contractual arrangements between the claimants and the investment managers, which provided that VAT (if applicable) was payable alongside investment management fees, the claimants paid VAT to the investment managers that were Non-Insurers. The claimants sought to recover the VAT paid to the investment managers that were Non-Insurers from HMRC on the basis that these supplies of services were exempt from VAT.
The applicable domestic legislation and practice treated investment management services provided from Non-Insurers as chargeable to VAT. The claimants sought to argue that pension fund management services fell within the exempt category of "insurance transactions" provided for under EU VAT legislation. The court rejected this claim and found that pensions fund management services did not constitute "insurance activities" and therefore were not exempt from VAT. The court also held that, if the services had been VAT exempt, the claimants' remedy would have been against the Non-Insurers, rather than HMRC and, even if that were not the case, the claims would have been time-barred under the domestic VAT legislation.
As Insurers supplying pension fund management services have historically been treated by HMRC as making exempt supplies for VAT, the claimants were relying to some extent on the principle of fiscal neutrality by arguing that similar supplies should be treated in the same way, regardless of whether they were supplied by an Insurer or a Non-Insurer. However, the court firmly rejected this argument on the basis that, under the EU legislation, defined benefit pension fund management services were chargeable to VAT whether supplied by an Insurer or a Non-Insurer. Going forward, HMRC announced earlier this year that the exemption from VAT for insurers for defined benefit pension fund management services would be withdrawn from 1 April 2019.