HMRC confirms approach to deduction of VAT on pension fund management costs

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Following the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holding BV cs te Hoogezand (PPG), HMRC has published revenue & Customs Brief 06/14.

The PPG case concerned whether a Dutch employer had a right to deduct VAT paid on services relating to the management and administration of its defined benefit pension scheme.

The CJEU ruled that (subject to certain conditions) an employer was entitled to deduct VAT it paid on services relating to the administration of its employees' pensions, and management of the assets of the fund established to safeguard those pensions, where the pension fund was a legally and fiscally separate entity.

Until now HMRC has allowed employers to deduct VAT relating to the administration of an occupational scheme, but investment management costs were considered to be costs of the fund itself.

If a single invoice was received for administration and investment management, employers were allowed to claim 30% of the VAT paid.

HMRC now accepts that employers may be able to claim input tax in relation to pension funds, where this was not allowed before the judgment. The criteria that apply are outside the scope of this note.

The existing 70/30 split arrangement will no longer apply, although a six month transitional period is available. If you have reclaimed VAT in the past, or have considered doing so, you should review your approach.

Note that PPG applies to defined benefit schemes, a separate judgment is expected relating to defined contribution schemes.

HMRC has indicated that it will "protect its position" in relation to DC schemes until the judgment is published.