HM Revenue and Customs (HMRC) has provided further guidance in its Revenue and Customs Briefs on VAT in relation to pension funds management costs and services.
The publication details the consequences of the European the Court of Justice of the European Union’s (CJEU) Europe in PPG Holdings BV and confirms the circumstances in which an employer can deduct VAT charged on administration and investment management services provided in relation to occupational pension schemes.
HMRC accepts than at an employer is entitled to deduct VAT charged according to its input VAT recovery percentage, but only if the employer can provide evidence that it:
- Is the actual recipient of the services.
- Is a party to the contract for those services.
- Has paid for these services.
- Holds a valid VAT invoice.
HMRC has also extended the transitional period during which an employer can apply its previous policy until 31 December 2015. This allowed the pension scheme and the employer to apply a 70/30 split: 70% could be allocated to the investment activites of the pension scheme and 30% could be allocated to the employer’s management and administration of the scheme, with input VAT being recovered accordingly.
HMRC’s Brief also covered the CJEU decision in ATP Pension Services and confirmed the characteristics of the pension funds that HMRC now accepts are ‘special investment funds’ and that should always be exempt from VAT.
The characteristics a pension scheme must have to be exempt from VAT for management and administration services provided by the fund manager include:
- Solely funded by persons to whom the retirement benefit is to be paid.
- The pension customers bear the investment risk.
- The fund contains the pooled contributions of several pension customers.
- The risk borne by the pension customers is spread over a range of securities.
Martin Sharratt, partner, head of VAT at Smith and Williamson, said: “HMRC accepts that some funds that contain the pooled assets of personal pension schemes and that have all of the above characteristics will also fall within the VAT exemption for fund management.
“There are a number of scenarios where it may not be straight forward to identify the services which qualify for exemption for example, where a scheme has a number of funds, not all of which are special investment funds, and the brief provides further guidance on this.”
