On 5 September HMRC issued the snappily titled “Revenue and Customs Brief 14 (2016): VAT, Deduction of VAT on pension fund management costs following Court of Justice of the European Union decision in PPG”. Here’s a link if you want to have a read. To condense it into a short sentence (or two) it extends the transitional period to deal with the issue of applying VAT to pension scheme services from 31 December 2016 to 31 December 2017. There is also an ominous comment that allows this period to be extended further if HMRC feel it is necessary.
It might be helpful to set out what the issue was in the first place.
In the past, HMRC allowed employers to recover VAT on invoices for professional fees which were incurred by the trustees (but invoiced to the Employer) in relation to the administration of the scheme. On the flip side, HMRC did not allow employers to recover VAT on investment management fees in the same way except where fees were covered by “mixed” invoices.
The basis for doing this was thrown up in the air following two CJEU cases in 2014 (the PPG case and the ATP Pension Service case). HMRC accepted that it was possible for an employer to recover VAT on administration fees provided certain conditions were met. There were potential solutions including
- tripartite agreements (but there were corporation tax issues)
- VAT Grouping (but with concerns about joint and several liabilities)
- Trustees registering for VAT (and specialist advice may be required)
Whilst HMRC mulled over a solution they introduced a transitional period that allowed trustees and employers to operate under existing provisions, i.e. employers continued to recover a proportion of the VAT on management costs under bilateral agreements where the trustees meet the cost. This was originally until 31 December 2015 but that was extended to 31 December 2016 and now to 31 December 2017 (and possibly beyond?). So I don’t think that there is any doubt that this issue is in the “difficult” category which, when dealing with tax and VAT, is saying something.
But does that mean trustees and employers can put it to the back of the shelf? No, in my view that would not be a good idea. If it has not already been considered then the issue should be on the agenda for trustee meetings for trustees and employers to consider, identify fees that might be in scope and to consider what action they should take in relation to transitional provisions and the alternatives (noting the potential problems).
There is no ‘one size fits all’ solution. There are issues and processes with all the solutions that need to be carefully considered and dealt with before being put in place. Indeed there may by alternative solutions that come out of the woodwork even at this late stage. Whatever the potential outcomes and solutions, I would recommend that trustees and employers get together soon to discuss the issue and agree on the preferred solution for their scheme and business. In doing this they should take appropriate VAT advice. Doing this should allow enough time to go through all the necessary steps without a mad panic at the end. It’s not heady stuff but keeping an eye on HMRC’s announcements is worthwhile and certainly may be financially beneficial in the long run. It may be that the answer is to wait and see but that should be as a result of a considered approach.