HM Revenue and Customs (HMRC) has won a legal battle against the National Association of Pension Funds (NAPF) and Wheels Common Investment Fund (WCIF) over the payment of VAT by defined benefit (DB) schemes.
The Court of Justice of European Union (CJEU) ruled that the DB schemes are not special investment funds and are therefore not exempt from paying VAT on investment management services.
The judgment means that pension schemes will continue to pay around £100 million a year in VAT and will not be able to make backdated claims to 1990 that could have totaled £2 billion.
The action was initiated in 2008 following a ruling in the European Court on JP Morgan Fleming Claverhouse Investment Trust plc.
At that time the EU court stated that investment trusts were special investment funds and should be exempt from paying VAT on investment management services. The NAPF and WCIF brought the case because they believed that pension funds have similar characteristics and should have a similar exemption.
The case was referred to the CJEU in February 2011 in order interpret the scope and meaning of the VAT exemption.
Joanne Segars, chief executive of NAPF (pictured), said: “This has been a long struggle, and unfortunately the judgment is deeply disappointing. Pension funds were set up to be vehicles that are free from tax, and they should not be paying these VAT charges.”
