VAT recovery and pension fund management.
HMRC have issued two revenue and customs briefs following decisions made by the European Court of Justice relating to VAT on pension fund management. Taxand UK summarises these announcements.
VAT recovery by employers on pension fund management (PPG)
This announcement confirms that HMRC’s long-standing policy that VAT can be recovered on administration of a pension fund but not on the investments costs will be replaced. An employer may treat all of the VAT on fund management and administration as its own input tax as long as the employer can demonstrate that it is properly receiving the fund manager’s services.
HMRC’s change of policy has retroactive effect meaning that employers may, subject to the four-year limit, claim input tax which they had not originally claimed but could have claimed in light of this change of policy.
Management exemption for defined contribution schemes (ATP)
HMRC have recognised that managing defined contribution schemes, whereby an individual’s pension income depends on how the fund performs, is – and should always have been – exempt from VAT. This includes administrative services that are essential to managing the fund. HMRC also now accepts that managing pooled assets held within personal pension schemes may be exempt if it meets the fund management exemption criteria.
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