Indirect Tax Update for week ending 30 May 2014

1. Indirect Tax Update for week ending 30 May 2014
Not much happening in the courts this week! HMRC has issued a further Revenue &
Customs Brief relating to pension schemes following the Court of Justice judgments in
PPG Holdings and ATP Pension services. An announcement which, basically, says, a
further announcement will be made soon.
It is now almost 12 months since the Court of Justice issued its judgment in the case of
PPG Holdings. Readers will remember that the case related to whether a business
could recover VAT incurred on the costs of establishing a separate pension scheme It
also suggested that VAT incurred on the costs of investment management could also
be reclaimed. Hitherto, HMRC had maintained a policy of allowing UK business to
reclaim VAT on 'set-up' and 'admin' costs, but not on the management of investments.
Following that judgment, HMRC issued R&C Brief 06/14 announcing a change of
policy. However, by its own admission, that Brief created more issues than it sought to
resolve. HMRC was somewhat taken aback by the degree of 'alarm' that aspects of the
Brief provoked. For example, R&C Brief 06/14 suggested that where an employer
incurred the cost of maintaining a pension scheme but recharged some or all of those
costs onto the separate scheme, VAT would be due at the standard rate of 20% on the
amount recharged. In the latest R&C Brief 22/14 HMRC has stated that following the
earlier R&C Brief, it has decided to consult with industry representatives on how the
new policy of dealing with VAT & pension schemes will apply.
In a separate judgment the Court of Justice also ruled recently that, if various
conditions are met, a defined contribution pension scheme could, for VAT purposes, be
regarded as a 'special investment fund'. This judgment will have a significant impact as
the management of such pension funds is not subject to VAT and pension schemes
that have incurred VAT charged by fund managers may be entitled to significant
refunds. R&C Brief 22/14 states that further guidance on both issues will be issued in
the Autumn of 2014 but, in the meantime, business can continue to use the transitional
arrangements outline in R&C Brief 06/14.
Comment – the issues in these two pension scheme cases are entirely different. PPG
concerns the recoverability of VAT on costs by employers and ATP concerns whether
defined contribution schemes can be regarded as special investment funds. It is not
therefore altogether clear why the two issues have been 'combined' as it seems that the
outcome of one issue is not reliant on the outcome of the other. Brief 06/14 was issued
without the necessary industry consultation and, as a result, has caused more problems
than it has resolved. It is, of course, accepted that the issues in both cases are complex.
However, it should not take over a year for VAT policy to emerge following a judgment
from the courts. Similarly, if HMRC is to consult with industry on policy issues, one
would reasonably expect this to occur before the issue of a Revenue & Customs Brief
not afterwards.
For further information in
relation to any of the
issues highlighted in this
Indirect Tax Update
please contact:
London/South East
Karen Robb
karen.robb@uk.gt.com
The Regions
Stuart Brodie
stuart.brodie@uk.gt.com
The Midlands
Mike Sheppard
mike.sheppard@uk.gt.com
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Indirect Tax Update 22/2014