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East Midlands Chamber News

Businesses set to benefit from European VAT ruling

brent goodwin newby castlemanBusinesses with company pension schemes could be in line for a VAT refund, according to Newby Castleman Chartered Accountants.

It follows changes to the way VAT is charged on the management and administration of those schemes.

HMRC has released two briefs formalising its position following two rulings by the Court of Justice of the European Union (CJEU), which affect the majority of pension schemes.

The court ruled that a pension fund which pooled investments from a number of defined contribution arrangements qualified as a Special Investment Fund (SIF) for the purposes of the VAT exemption for fund management services.

This means that VAT should not have been charged on the supply of administration and investment management services supplied to those funds.

Funds which contain the pooled assets of personal retirement pots will also, potentially, fall within the exemption provided they meet the conditions laid down by HMRC.

Brent Goodwin, VAT Manager at Newby Castleman, said: “HMRC is now implementing the decisions made by CJEU, as a result of which UK businesses are now expected to benefit from a substantial VAT windfall.

"They will be able to seek to reclaim VAT incorrectly charged on the administration of their pension schemes over the past four years, as well as ensuring future charges are exempt from VAT.”

In a separate development arising out of the court decision, HMRC issued further guidance regarding pension schemes which do not meet the definition of a SIF, as above.

The court ruled that an employer which has set up a pension fund does have an entitlement to deduct VAT paid on services related both to the administration of the scheme and the management of their assets.

Historically, HMRC has taken the view that only the VAT on the administration of the scheme was recoverable, on the basis that these costs were overheads of the employer and thus had a direct and immediate link to the employer’s business.

Conversely, VAT incurred on the management of the investments within the scheme was not viewed as a cost to the employer and therefore not recoverable by them. Where separate invoices were not issued by the administrator a 30/70 split was applied.

Brent added: "There are transitional rules in place, taking us through to 31 December 2015 and effectively allowing the status quo to continue.

"However, it would be in many employers’ interest to take immediate advantage of the new ruling and where possible recover the full amount of VAT being charged on the administration and management of their schemes.

"They should also consider making a claim for previously unrecovered VAT stretching back over the past four years.”

His advice to businesses is to contact their scheme administrator and discuss the impact of these cases on their particular circumstances and where possible take the necessary steps to take advantage of these changes both historically and moving forward.

Newby Castleman is an independent accountancy firm offering a range of specialist financial services, business and tax advice for individuals and businesses.

Its head office is on Regent Road, Leicester, and it has a branch office in Forest Road, Loughborough.