VAT savings opportunity for pension funds

VAT savings opportunity for pension funds

An appeal relating to VAT incurred by pension funds was recently referred to the European Court of Justice (ECJ). If the appeal succeeds, it is estimated it could save UK pension funds £100 million per year.

UK VAT law currently treats investment management services supplied to occupational defined benefit pension funds as standard rated. As pension funds usually have little or no entitlement to VAT recovery, this VAT charge significantly increases the funds’ bottom line costs.

If HMRC lose the appeal, these management services will become VAT exempt. This would obviously be very good news for occupational defined benefit pension funds. Not only would their ongoing investment management costs be reduced, but they would also have an opportunity to lodge retrospective claims for VAT overpaid over the past four years.

As the outcome of the case may not be known for some months, relevant funds should consider submitting ‘protective’ claims to HMRC as soon as possible. This would prevent loss of entitlement to claim VAT which, between now and the release of the ECJ’s decision, would fall outside the four year cap on VAT reclaims.