When did VAT get so interesting?

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Tuesday, 27 August 2013

Last month’s ruling by the European Court of Justice (ECJ) in the PPG case led to widespread coverage of the potential to reclaim VAT on pension fund investment management costs and the understandable excitement of sponsoring employers. It all seemed great – a potential windfall to help towards those seemingly sticky pension deficits.

Whilst the ECJ ruling does open the door for some, it is important to understand who may be able to benefit, as it does not apply to all pension schemes and all types of investment.

The requirement for the pension fund to be “in the form of a legally and fiscally separate entity” suggests that the ruling will only apply to individually established trust-based pension schemes. There also needs to be a “direct and immediate link” between the investment services provided to the pension scheme and the employer’s business. Together with the earlier ECJ ruling in the Wheels Common Investment Fund case that refused an extension of the VAT exemption for ‘special investment funds’ to also cover pooled pension investment funds, it seems that the PPG ruling may only apply to segregated investment mandates.

We have yet to see how HMRC will respond to the PPG ruling. However, for employers with a standalone trust-based pension scheme that invests on a segregated basis, the four year time limit for reclaiming VAT surely means it is sensible to make a protective claim now.

Getting some tax back to help fund a pension scheme is likely to make VAT very interesting!

Wayne Phelan - independent pension trustee

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