CJEU decision might lead to a reassessment of UK pension scheme VAT treatment

Since the Wheels case (which was discussed in Taylor Wessing’s last Pensions Pieces), the Court of Justice of the European Union (CJEU) has been considering further issues to do with VAT and pension schemes.

Because pension schemes are not VAT registered, they cannot benefit from the advantages of VAT-registered entities in setting off VAT paid against VAT charged. VAT-registered employers often pay scheme expenses on behalf of the trustees to take advantage of the employers’ VAT status, and HMRC permits this so long as the expenses in question do not relate to certain activities, mostly investment related, such as financial advice and transaction charges. The case of PPG Holdings BV (Case C-26/12) involved a Dutch group of companies that paid expenses on behalf of the pension scheme and whether the VAT could be set off against the VAT charged by the business.

The court held that it could, because the provision of the pension scheme for its employees was part of the group’s business. This may mean that HMRC amends its own policy and allows employers to claim for VAT paid on all expenses relating to the pension scheme, but HMRC is yet to respond. HMRC may be able to distinguish the Dutch situation – for instance the judgment does not make it entirely clear what expenses were being covered, and also some emphasis was placed on the fact that the Dutch pension provision was compulsory. However, this case may pave the way to allowing pension schemes not to pay VAT if the employer is able to pay scheme expenses and offset the VAT on all of those against the VAT it is charged…

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