In the light of a recent ruling by the Court of Justice of the European Union (CJEU), Xafinity is recommending that all sponsoring employers review their pension scheme VAT processes with their tax advisers. Specifically, employers should review the interaction between trustees and employer as they may be able to reclaim VAT on a pension scheme’s investment management fees.
Xafinity advises that HMRC’s stance in the UK has always been that a VAT-registered employer with a trust-based scheme may recover the VAT incurred both in setting up the scheme and on its day-to-day management, so long as the employer is not reimbursed by the trustees.
However, VAT recovery in the UK has so far not extended to tax incurred on a scheme’s investment activities, even if the employer pays the expenses on behalf of the trustees. Xafinity advises this could change following a recent CJEU ruling relating to a Dutch employer. The CJEU overruled the Dutch tax authorities and ruled that “...a taxable person who has set up a pension fund in the form of a legally and fiscally separate entity in order to safeguard the pension rights of his employees and former employees, is entitled to deduct the value added tax he has paid on services relating to the management and operation of that fund, provided that the existence of a direct and immediate link is apparent from all the circumstances of the transactions in question”.
Jonathan Seed, director, Xafinity Consulting, comments that “Employers should review their pension scheme VAT arrangements with their tax advisers, to maximise tax efficiency going forwards. In addition, they should consider making protective claims to HMRC for VAT not recovered in the past on pension scheme investment management services.”
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