Another VAT extension for UK pension schemes

This announcement  follows the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) (PPG).  This case concerned an employer’s entitlement to deduct VAT paid on services relating to the administration of defined benefit pension schemes and the management of their assets.

The latest announcement

HMRC has today announced that they will be extending the transitional period for the new VAT rules on investment manager costs to at least 31 December 2017. This will be reviewed again by HMRC towards the end of 2017 to assess whether a further extension may be required, implying this issue may yet rumble on for some time.

HMRC has acknowledged that it has taken them longer than expected to reconcile the court decision with pension and financial service regulations, accounting rules and emerging case law. With officials becoming immersed in Brexit negotiations, this is unlikely to represent a priority for HMRC or the Treasury in the near term.

Where does this leave pension schemes / sponsoring employers?

Taxpayers may continue to use the VAT treatment outlined in VAT Notice 700/17: Funded Pension Schemes until 31 December 2017.

Some taxpayers may have already made changes to their structure and/or contractual arrangements to comply with the judgment. Provided the employer and pension scheme trustees agree and both apply the same treatment, these taxpayers may continue with those arrangements. If they wish, they may choose to revert back to the previous treatment during the transitional period.

Taxpayers are advised, however, that adopting alternative structures to comply with the VAT requirements could have wider implications, in particular in respect of regulatory requirements and Corporation Tax deductions.


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