HMRC is extending the transitional period for VAT of pension management costs by 12 months.

In its latest update, HMRC Brief 14/16: VAT, Deduction of VAT on pension fund management costs following Court of Justice of the European Union decision in PPG, HMRC said “the transitional period has been extended from 31 December 2016 to 31 December 2017 because it is taking longer than expected to reconcile the court decision with pension and financial service regulations, accounting values and emerging case law”.

Taxpayers may continue to use the VAT treatment outlined in VAT Notice 700/17: Funded Pension Schemes.

The industry has been awaiting HMRC clarification with regards to how it can reclaim tax on VAT related administration and management costs.

The extension stems from The Court of Justice of the European Union (CJEU) delivering on 18 July 2013 its judgment in the case of PPG Holdings BV (PPG) (C-26/12) on the extent to which an employer can deduct VAT incurred on costs relating to a defined benefit pension fund established as a separate legal entity.

Significantly, the CJEU held that, in circumstances where the employer paid those costs and did not pass them on to the pension fund, the employer was entitled to recover the VAT incurred thereon.

Broadstone technical director David Brooks said: “The VAT on the pension costs problem has been a difficult conundrum for HMRC to reconcile – especially with other court cases, the complexity of pensions regulation and, although not explicitly mentioned, the Brexit vote.

“It is understood that over the summer the government has consulted on some draft guidance but it would appear this still left too many issues for the new rules to be implemented effectively.

“Perhaps in an acknowledgement of the difficulty and uncertainty HMRC has promised to come back towards the end of next year and review the situation with a view to extending the deadline again. It would seem that very little work will be happening on this in the meantime.”


 

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