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Management costs relating to defined contribution (DC) occupational pension schemes are to be treated as exempt from VAT, HMRC have announced.
Management costs relating to defined contribution (DC) occupational pension schemes are to be treated as exempt from VAT, HMRC have announced.
The department’s new policy follows spring’s ATP Pension Service case, in which the Court of Justice of the European Union found a pension fund that pooled investments from a number of DC arrangements qualified as a special investment fund (SIF) for the purposes of the VAT exemption for fund management services.
The decision included account administration services as long as they were essential for the management of the fund.
The Revenue had previously not considered pension funds of any kind to be SIFs, and treated services provided in connection with all types of fund as falling outside the exemption.
The tax department now accepts that funds are SIFs for the purposes of the exemption, meaning the services of managing and administering should be, and always should have been, exempt from VAT, if:
- they are solely funded by persons to whom the retirement benefit is to be paid;
- the member bears the investment risk;
- the fund contains the pooled contributions of several members; and
- the risk borne by the members is spread over a range of securities.
Funds that contain the pooled assets of personal retirement pots will also fall within the VAT exemption for fund management services, provided they meet the conditions above.
A personal pension fund will not pool assets if an individual investor exercises an option to give directions as to how their contributions are invested that overrides the investment powers of the trustee or pension provider.
The exemption could still apply to the fund where the costs of managing the assets of investors who give such directions can be easily identified and excluded from exemption.
Pension schemes that pay members’ contributions into a number of different funds will be exempt to the extent that the services supplied in connection with funds possess the characteristics above. Where several schemes’ contributions are paid into a single fund, it will be necessary to consider whether the fund meets the conditions as a whole.
Businesses that have accounted for VAT on pension fund management services that qualify for exemption in accordance with HMRC’s revised policy – set out in Revenue and Customs Brief 44 (2014) – can claim a refund of output tax over-accounted for on supplies.
