Pension funds and VAT - Are management services to pension funds exempt from VAT? (February 2008)

Are management services to pension funds exempt from VAT?

The answer is that it is possible, but not certain.

In the case of JP Morgan Fleming Claverhouse Investment Trust, the European Court of Justice ruled that there is nothing in European VAT legislation that prevents the management of closed-ended investment funds from receiving fund management services exempt from VAT.

However, HM Revenue and Customs (HMRC) has stated that pension fund managers are not entitled to exempt their supplies. There will therefore have to be a test case to provide certainty for pension funds and their managers.

In the meantime, funds should protect their position by contacting their fund managers, as a matter of urgency, to ensure that the manager is taking the appropriate action to protect the recovery of the maximum amount of VAT.

Ensure you are maximising your VAT recovery

If fund managers continue to charge VAT, possibly because their services do not constitute ‘management’ for the purposes of the exemption, the VAT may still be recoverable. The fund will be able to recover some or all of the VAT charged on investment services as input tax, if it makes taxable supplies. In addition, where the employer is VAT-registered, input tax can be deducted by it on services received in connection with setting up the fund and on day-to-day management, subject to the normal rules.

In another twist, the European Commission has recently issued proposals for a new Council Directive and Regulation in respect of finance and insurance services. As part of this, it is proposed that the administration and investment management of pension funds would be exempt from VAT. However, as these proposals require the unanimous agreement of all 27 Member States, it is highly unlikely that these proposals will be adopted before 2010.

To discuss these opportunities to optimise your fund’s VAT position in more detail, please speak to your usual Baker Tilly contact, or telephone your local Baker Tilly office.

© 2008 Baker Tilly UK Group LLP, all rights reserved, 01/08

This technical briefing is designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this briefing may not be comprehensive and recipients should not act upon it without seeking professional advice from their usual professional adviser.

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