Pension schemes may get VAT refunds after European Court decisions
27 November 2014
Pension scheme sponsors could receive a tax windfall following a change in HM Revenue and Customs (HMRC) policy on VAT recovery in response to two European Court cases.
Employers in defined contribution (DC) and defined benefit (DB) schemes may be able to claim input tax on management services that they could not do previously.
The decision was made in light of two separate cases in the European Court involving a Danish DC scheme and Dutch DB scheme.
An HMRC paper confirmed that DC occupational schemes should not incur VAT on fees for managing their funds following the judgment made in the case of Danish ATP Pension Services. HMRC's previous policy did not exempt management services from tax, which would have included investment management and administration.
A second HMRC announcement said that employers of DB schemes will be able to recover VAT on invoices relating to both set up and day-to-day administration costs, and the investment management relating to the schemes' assets. Employers could historically only recover VAT on administration services. The decision was made following the European case involving Dutch scheme PPG.