HMRC and the National Association of Pension Funds have referred a two-year legal dispute over whether DB schemes should have to pay VAT on investment management services to the European Court of Justice. The NAPF believes that final salary pension funds should be exempt from paying VAT. The challenge against HMRC had been initiated by the NAPF and Wheels Common Investment Fund, a multi-employer scheme, in 2008 after a ruling in the ECJ that investment trusts were special investment funds and should be exempt from paying VAT on investment management services. A VAT tribunal hearing held earlier in February had decided that the ECJ should examine the meaning and scope of that exemption. Investment management services provided through pooled funds and insurance wrappers are already exempt with the result that defined contribution pensions schemes (and some DB schemes that have structured their investments in this way) would not usually pay VAT on investment management services.

If the ECJ agrees with the NAPF, DB schemes may be able to benefit from the exemption more generally and the reduced running costs and consequent boost in funds available for investment. Some DB schemes may be able to backdate their claims against HMRC too, for a number of years, to recover any VAT already paid.