Our earlier articles (VAT on pension schemes: possible further developmentsA new decision of the Court of Justice of the European Union) relating to VAT explain the cases of PPG andATP in the Court of Justice of the European Union (“CJEU”) and HMRC’s position in relation to these issues. In relation to the treatment of expenses of a pension scheme paid for by a VATregistered employer, HMRC acknowledged that the VAT should be reclaimable by employers so long as the services were provided to the employer. This caused significant concern amongst the industry for the obvious reason that services provided to the scheme are not in fact generally provided to the employer and indeed services provided to both employer and trustee may well involve some significant conflicts of interest. However a transitional period allowing schemes to use the previous process (by which only investment costs were not VATreclaimable) continued to operate until the end of 2015.

Over the course of the year, HMRC have looked at a number of ways in which to make the process operate appropriately. HMRC retains its proposals that the service should be evidenced by a tripartite contract, including both the employer and the trustee, and a number of issues with that including those relating to conflicts and the duties of the service provider have been raised. Industry bodies (including the Association of Pension Lawyers) have raised concerns and proposed other options to deal with this issue. As a result of these, HMRC has acknowledged the issues with their proposals insofar as confirming in a policy paper HMRCbrief 17/15 that it was considering these options and extending the transitional period for the use of the previous system until 31 December 2016.

This issue has clearly not reached resolution given the length of the extension of time. However, it is obvious that HMRC understands a number of the concerns that have been raised with it and in the course of 2016 it is likely that a solution will be found.