Pension Fund update

There are two important updates to note as regards VAT and pension schemes.

The first relates to VAT chargeable on supplies of fund management services by insurers.

In its Revenue and Customs Brief 3/17 HMRC announced a change in policy regarding the VAT treatment of pensions fund management services provided by regulated insurance companies.

Following the conclusion of several related CJEU cases in this area HMRC intended to discontinue the policy of allowing insurers to treat supplies of managing pension funds (other than Special Investments Funds-SIFs) as VAT exempt. This policy change was to take place on 1 January 2018 and would have resulted in VAT being charged by insurers on the services of managing non-SIF pension funds.

Since the Brief was published HMRC has held meetings with industry representatives and we understand it has agreed to postpone the implementation date until late 2018/early 2019. A revised implementation date is expected to be notified soon.

The second update is in respect of recovery of VAT on costs incurred by employers providing occupational pensions schemes.

HMRC has updated its internal guidance to bring it up to date regarding the rules for recovering input VAT incurred in respect of occupational pension funds following the judgement in the PPG Case.

Transitional rules were introduced by HMRC, following PPG, which allowed employers a full recovery of VAT incurred on administration management costs as well as a 30/70 split recovery of mixed supplies of investment and administration management services. The transitional period was due to expire of 31 December 2017. However, the updated guidance confirms that the transitional rules will continue to be available after that date, along with the option of applying the PPG decision, which allows the employer to recover VAT on investment management services where it contracts directly for those services or where tripartite contracts are in place (in respect of defined benefit pension schemes).

The guidance can be read in full here.

The interaction of VAT and pension funds is complex and advice should be sought if there is any doubt as regards the correct treatment of supplies or input VAT recovery.