Case law update: Wheels Common Investment Fund Trustees Ltd and Ors v Commissioners for Her Majesty's Revenue and Customs

As ordinary consumers, we expect to pay value-added tax (VAT) on goods and services as part of our day-to-day life, but do you expect it on pensions? Well, the position in relation to investments, and in turn pension investments, was far more complicated than one might have envisaged prior to the recent decision of the Court of Justice of the European Union (CJEU) in Wheels Common Investment Fund Trustees Ltd and Others v Commissioners for Her Majesty’s Revenue and Customs in March this year, and the case does nothing to remove these complications.

VAT is both payable and harmonised in accordance with EU law. The common system of VAT exempts financial instruments themselves but broadly provides for VAT to be due on financial advice and management. Many pension schemes have therefore been paying a substantial amount of VAT for these services for quite a long time. This is, of course, an issue as unlike most employers pensions schemes are not VAT registered (as they are not businesses) and so cannot reclaim VAT. Indeed, even employers cannot claim the VAT in respect of scheme investment costs unlike the position for most other scheme expenses, where HMRC generally allows invoices to be addressed to the scheme employer so it can claim reclaim the VAT on them.

There are, however, exemptions, and one is Article 135(1)(g) of Council Directive 2006/112/EC and its predecessor, Article 13B(d)(6) of the Sixth VAT Directive (77/388/EEC). These provisions have exempted ‘the management of special investment funds as defined by member states’…

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