On 5 September 2016, HMRC announced that it was giving itself
another year to address some of the difficult issues around VAT on
fees charged to pension funds. This means that the end of the
current transitional period for retaining the old arrangements is
extended from 31 December 2016 to the same date in 2017.
The current position is as follows:
In a European Court case often known
as ATP, the court ruled that management of pooled defined
contribution schemes is an exempt supply for VAT purposes. However,
another case known as the Wheels case ruled that not all management
supplies benefit from this exemption, in particular those relating
to defined benefit schemes.
More recently in a third case known as
PPG the court decided that an employer can recover VAT on supplies
to it whether relating to the administrative or investment
management aspects of the pension scheme.
HMRC published Brief 43 (2014) in
which they accepted that PPG required a change of policy. The
original policy is that only VAT on supplies relating to the
administrative aspects of the pension scheme is recoverable by the
employer. In the light of PPG, VAT on supplies relating to both
administrative and investment management aspects of the schemes is
recoverable by the employer provided the supply is clearly made to
the employer. The previous policy was that an invoice covering both
types of supply could have its VAT apportioned as to 30%
recoverable by the employer on the basis of relating to
administration and 70% being input VAT of the scheme relating to
investment activities. Taxpayers could continue to adopt this
approach on a transitional basis until 31 December 2015.
HMRC then published Brief 8 (2015) in
which they indicated that a tri-partite contract between the scheme
trustees, employer and service provider would satisfy the
requirement for input VAT deduction that the supplies are made to
the employer provided several other factors support this, such as
the employer paying for the services and having rights such as
But some of the advising professions had concerns about changing
trustee-adviser relationships to involve the employer and HMRC then
alerted taxpayers to the fact that a tri-partite contract would not
give the employer a corporation tax deduction for the payments. It
explored two alternatives:
Pension scheme trustees contracting to
receive the supplies and then supplying them on to the employer;
neither of which are perfect, in particular creating recovery
problems for VAT relating to the scheme's investment
HMRC also stated that further alternatives were being considered
and that further guidance would be issued in due course. It
extended the transitional period ending in 2015 for another 12
months. This has now been extended again while HMRC and the
industry continue to grapple with the technical detail that any
solution must meet.
It is good to know that HMRC remains open to identifying
solutions that work while recognising that pushing through an
imperfect solution will not be helpful. Nevertheless it would be
nice to think that these issues can be resolved in the extra year.
Note that there is no suggestion that the exit of the UK from the
EU would affect HMRC's plans even though it is not clear that
the European Court decisions would have any continuing legal effect
once Brexit takes place.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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