Multi-employer pension fund Wheels Common Investment Fund (WCIF) and the National Association of Pension Funds (NAPF) have agreed to bring a challenge against HM Revenue and Customs (HMRC) on the application of value added tax (VAT) on the investment management services supplied to occupational pension funds.
If the challenge is successful, it could mean that the pension funds sector could receive up to an estimated £300m in backdated VAT for the past three years and pension funds would no longer have to pay £100m each year in VAT going forward.
The funds most likely to benefit will be mostly private sector defined benefit (DB) schemes with segregated investments. The NAPF is encouraging schemes to talk to investment managers before submitting protective claims and if they have done so already to stand behind the appeal.
The challenge follows a ruling in the European Court of Justice, which stated that investment trusts should be exempt from VAT on investment management services. The NAPF and WCIF believe occupational schemes should also be exempt.
Joanne Segars, chief executive of the NAPF, said: “There is a strong case that defined benefit occupational pension funds should be exempt from paying VAT on investment management services. A successful outcome would benefit members in both open and closed defined benefit schemes. It would reduce running costs and increase the available money for investment.”
The NAPF will be advised by KPMG and, along with WCIF, will present its case to the UK VAT & Duties Tribunal.