The Court of Justice of the European Union (CJEU) has today dealt a severe blow to occupational pensions schemes after ruling that VAT is properly chargeable on the fund management fees they incur.
Wheels Common Investment Fund Trustees Ltd (Wheels) operates an occupational pension scheme into which both individuals and employers make regular contributions. The pooled assets of a number of such schemes are then managed by fund managers and the question to resolve in this case was whether the fees charged to the various schemes by the fund managers should be subject to VAT or, as contended by Wheels, the charges should be exempt from VAT.
Lorraine Parkin, Head of Indirect Tax at Grant Thornton UK LLP, commented: “Following earlier litigation, the answer to whether the fund managers' fees should be exempt depends on whether an occupational pension scheme, such as that operated by Wheels, should be treated for VAT purposes as a ‘Special Investment Fund’. Unfortunately, the CJEU has taken the view that the VAT exemption for the ‘management of Special Investment Funds’ does not apply to occupational schemes.
“The service of fund management in respect of other collective investment vehicles, such as unit trusts, does benefit from VAT exemption. However, the CJEU has clearly stated in this judgment that an occupational scheme is, in fact, not open to the public but constitutes an employment-related benefit that employers grant only to their employees. Consequently, occupational schemes cannot be regarded as, or similar, to ‘Special Investment Funds’. VAT is therefore chargeable on the fund managers' fees.
"A significant amount of money was riding on this judgement. Had the judgment been that occupational schemes were to be regarded as Special Investment Funds, it may have been possible for schemes to have claimed substantial sums, via the fund managers, to recoup the VAT previously charged by them. This ruling from the CJEU means that this will no longer be possible which is no doubt a blow to many funds but probably has HM Treasury breathing a sigh of relief.”
A HMRC spokesman commented:
"HMRC is pleased that the judgement supports our current policy on the application of the investment fund management VAT exemption."
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