UK Pension Funds lose £100m following Europe VAT ruling
Today, the highest court of appeal in Europe, the European Court of Justice, ruled that UK defined benefit pension schemes could not take advantage of a VAT exemption which would have saved them over £100 million per annum.
The ruling supports the UK’s HMRC view that Pension Funds cannot take advantage of a ruling in 2007 that ‘Special Investment Funds’ (2007 JP Morgan Fleming Claverhouse Investment Trust) should not suffer VAT costs on third party management fees. HMRC argued that Pension Funds are not similar to Special Investment Funds, and in competition with other regular pooled funds.
Today’s ruling was brought by Wheels Common Investment Fund, which holds the Ford Pension Scheme, and the National Association of Pension Funds.
The annual savings for Pension Funds would have been over £100 million. This could potentially have been back dated to 1990, which would have meant a windfall for pension funds of about £2 billion. The definition of VAT on funds is not clear. The new VAT Directive on financial services was supposed to clear this up, but it has stalled in negotiation. This is a welcome ruling for the Exchequer in the run up to the budget.