UK Pensions Lose Battle over VAT

Pensions on the hook for £100 million a year in tax as battle with Europe fails.

(March 7, 2013) -- A coalition of UK pension funds has lost its battle against the national tax office, meaning the nation's schemes will not be exempt from paying Value Added Tax (VAT) on their investment activities.

The National Association of Pension Funds (NAPF) and Wheels Common Investment Fund, which manages assets on behalf of the Ford Motor Company, announced today they had lost their fight with the Court of Justice of European Union on the issue.

The judgment means pension schemes will continue to pay about £100 million a year in VAT and will not be able to make backdated claims to 1990 that could have totalled £2 billion.

The action was initiated in 2008 following a ruling in the European Court on JP Morgan Fleming Claverhouse Investment Trust plc. The Court stated then that investment trusts were special investment funds and should be exempt from paying VAT on investment management services.

Joanne Segars, chief executive of the NAPF, said: "This has been a long struggle, and unfortunately the judgment is deeply disappointing. Pension funds were set up to be vehicles that are free from tax, and they should not be paying these VAT charges. The European Commission is currently reviewing the VAT Directive, and we will be making strong representations as to why the management of pension funds should be VAT exempt under the proposed change to the current VAT regime. We will be taking this matter up with the [European] Commission as a matter of urgency."

Julie Patterson, director of authorised funds and tax at the UK's Investment Management Association, said the case highlighted the need for more clarity around what is considered a "Special Investment Fund".

Patterson said: "Costly and lengthy legal cases are not in anyone's interests. A clearer definition of exactly where VAT should, and should not, apply in this area is needed in EU law.  It is unfortunate that discussions on the Commission's proposals on the topic have stalled."

A spokesperson for Her Majesty's Revenue and Customs (HMRC) told aiCIO: "HMRC is pleased that the judgement supports our current policy on the application of the investment fund management VAT exemption."

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