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HMRC have set out their VAT position following the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12). The case concerned an employer’s entitlement to deduct VAT paid on services relating to the administration and management of a defined benefit pension scheme.
HMRC have set out their VAT position following the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12). The case concerned an employer’s entitlement to deduct VAT paid on services relating to the administration and management of a defined benefit pension scheme.
The CJEU ruled that – subject to certain conditions – the employer was entitled to deduct VAT it paid on services relating to the administration of employees’ pensions and management of the assets of the fund set up to safeguard the pensions where the fund was a legally and fiscally separate entity.
Revenue policy had until now distinguished between costs incurred in relation to the setting up and day-to-day administration of occupational pension funds and the management of the investment activities of funds.
Firms could deduct VAT incurred in relation to the general administration of an occupational pension scheme, but investment management cost inputs were deductible by the fund and/or trustees.
Taxman allowed the employer to claim 30% of the VAT as relating to the general management of the scheme where a single invoice was received covering elements. The fund could claim 70% as relating to investment management.
As a result of the PPG decision, businesses may be able to claim input tax in relation to pension funds where they could not previously – but HMRC will not accept that the VAT incurred in relation to pension fund administration is deductible by an employer in circumstances where supplies were not made to the employer and supply is limited to investment management services only.
Where the employer receives the supply but the pension fund bears the cost of the services, the tax department will require an equivalent amount of output VAT to be accounted for in respect of the amounts reimbursed. The amount is potentially deductible by the pension fund to the extent that it is engaged in taxable business activities.
Non-business activities and exempt supplies will need to be taken into account when deducting VAT incurred, and deduction must be restricted accordingly.
Businesses that provide pension schemes for employees and receive supplies of services that fall within the criteria outlined above may claim a refund of input VAT that has not previously been claimed.
Where a firm has chosen to apply the 70/30 split, a claim for a refund would entail a recalculation of the amounts of input tax proper to the employer and the fund respectively.
Claims should be made by email.
A judgment on the liability of management services in respect of defined contribution pension schemes is expected soon from the CJEU in ATP Pension Service A/S (C-464/12).
