VAT recovery and pension schemes: Where are we now?

HMRC’s policy on reclaiming VAT on investment management and other costs remains under review in the light of two recent decisions from the Court of Justice of the European Union.

The first of these cases, PPG Holdings, relates to defined benefit schemes. Although the ruling itself appeared helpful for employers, HMRC’s current interpretation of it is restrictive and could effectively increase overall pension scheme costs for sponsors of DB schemes. The second case, ATP PensionService , relates to the administration of defined contribution schemes. HMRC has yet to respond formally to this case.

Updated guidance on VAT treatment in the light of both judgments is now expected in autumn 2014. Current arrangements where the pension scheme is invoiced for services under HMRC’s previous practice, as expressed in VAT Notice 700/17 (the 70:30 split arrangements) can continue until the new guidance is issued. A further transitional period is likely to be allowed from that point.

This briefing summarises the current position, including areas of uncertainty, and highlights points for schemes and sponsors to consider in advance of new guidance being published.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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