Following the decision of the Court of Justice of the European Union (CJEU) in ATP Pension Services, HMRC has issued guidance in RCB 44 (2014) on when VAT exemption will apply to charges for the management and administration of a defined contribution occupational pension fund. This decision has significant implications both for trustees of eligible pension funds that have been charged VAT and to suppliers of services to pension funds who must now confirm whether their services are taxable or exempt from VAT.
In light of the judgment, the HMRC guidance sets out the following characteristics of a pension fund that must be present before it can be regarded as a 'special investment fund' (SIF). " The pension funds are solely funded (whether directly or indirectly) by persons to whom the retirement benefit is to be paid (i.e. the pension customers).
- 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.
Only if the fund qualifies as a SIF, can management and administration services supplied to it potentially qualify for VAT exemption.
As the judgment in ATP Pension Services only concerned a defined contribution scheme, the RCB does not consider defined benefit schemes for which exemption is not available following the CJEU decision in Wheels. However, prior to the decision of the CJEU, HMRC did not consider that any pension fund could qualify as a SIF.
HMRC does not specify which management and administration services are VAT exempt when supplied to a SIF. The RCB states that the services must be "integral (i.e. specific and essential) to the operation of a pension fund," and refers to ATP-type services and other services already recognised as falling within the fund management exemption following earlier CJEU decisions. Accordingly, in order for VAT exemption to apply to management and administration services supplied to a pension fund, suppliers will need to ensure that the fund in question qualifies as a SIF and that the services being supplied are integral to the operation of the scheme.
The guidance published by HMRC makes it clear that suppliers of relevant services to pension funds are under no obligation to claim a refund of VAT 'overcharged', but goes on to specify the conditions that must be met if a refund is claimed, including the four-year capping of claims.
Our view
As indicated in our VAT alert in November 2014, this welcome decision presents opportunities for trustees of defined contribution schemes to reclaim overcharged VAT from suppliers and for fund managers and administrators to reclaim VAT from HMRC for the last four years in order to refund it to the pension schemes. They should both also review the VAT treatment of administration services going forward.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2015. code: NTD237 exp: 30/06/2015