NAPF: Pension fund and industry body to bring joint legal challenge over VAT on investment management services

Wheels Common Investment Fund (WCIF)1 and the National Association of Pension Funds (NAPF) have agreed that they will jointly bring a legal challenge against HM Revenue & Customs (HMRC) on the application of VAT on the investment management services supplied to occupational pension funds. WCIF is an £8 billion multi-employer scheme covering Ford Motor Company Limited, Jaguar Cars Limited and Land Rover.

A successful challenge could mean that the pension funds sector as a whole could stand to receive up to an estimated £300 million in backdated VAT over the past three years. Due to a recent House of Lords Judgement, claims can also be made for the period 1990 – 19962. In addition, pension funds would no longer have to pay an estimated £100 million per annum in VAT going forward.

The beneficiaries of a successful challenge will mainly be private sector defined benefit pension schemes3 with segregated investments. The NAPF is encouraging schemes to talk to their investment managers about submitting protective claims if they have not done so already. Pension funds which have already submitted claims and had those claims rejected should now ask for their appeal to stand behind the WCIF/NAPF appeal.

This challenge follows a ruling4 in the European Court of Justice (ECJ) which stated that investment trusts should be exempt from VAT on investment management services.

The NAPF and WCIF, having taken advice, believe that occupational pension funds should also be exempt.

NAPF Chief Executive, Joanne Segars, said: “After last year’s ECJ Judgement there is a strong case that defined benefit occupational pension funds should be exempt from paying VAT on investment management services.

“Ultimately, a successful outcome would benefit members in both open and closed defined benefit schemes. It would reduce running costs and increase the available money for investment.”

The NAPF and WCIF will present a case to the UK VAT & Duties Tribunal. KPMG will be advising the NAPF on this matter.


ENDS

Notes to Editors


1. The Wheels Common Investment Fund has £8 billion in assets under management and is a multi-employer pension scheme which includes :-

- Ford Motor Company Limited Pension Funds;
- Jaguar Cars Limited. Pension Plans;
- Land Rover Pension Scheme.

2. Fleming (t/a Bodycraft) v HMRC, Conde Nast Publications Limited v HMRC 2008 [UKHL] 2.

3. The issue affects pension funds which have segregated investments managed through asset managers. Investment management services provided through pooled funds and insurance wrappers are already exempt. In practice, this means that defined contribution schemes will not usually pay VAT on investment management services. Some defined benefit schemes also structure their investments in this way. Local Authority funds will generally be able to recover all of the VAT charged to them, including that on investment management fees.

4. The ruling in the case of JPMorgan Fleming Claverhouse Investment Trust plc, The Association of Investment Trust Companies v The Commissioners of HM Revenue and Customs can be found at:-

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:62005J0363:EN:HTML

In June 2007, the European Court of Justice (ECJ) clarified what the VAT Directive meant when it stated the “management of special investment funds as defined by Member States” should be exempt from VAT. The judgement dealt with questions arising from a challenge to UK law under which VAT was charged on investment management services supplied to Investment Trust Companies (ITCs) but not on similar services supplied to Authorised Unit Trusts, Open Ended Investment Companies and other single property trust-based schemes.

In November 2007, HMRC conceded that investment management services supplied to ITCs should be exempt. However, it continues to maintain that the ECJ judgement should not apply to occupational pension funds. This means that a fresh legal challenge would be required before pension funds could get back any of the VAT they have paid. The HMRC briefing can be found at:-

http://www.hmrc.gov.uk/briefs/vat/brief6507.htm


About the National Association of Pension Funds Limited

The NAPF is the leading voice of workplace pension provision in the UK. Some 10 million working people are currently in NAPF Member schemes, while around 5 million pensioners are receiving valuable retirement income from such schemes. NAPF Member schemes hold assets of around £800bn, and account for approximately one fifth of investment in the UK stock market.

For further information

Journalists requiring more information should contact:-
NAPF and WCIF enquiries: Mark Brooks
020 7808 1312 mark.brooks@napf.co.uk 07917 506683

KPMG enquiries: Margot Cowhig
0207 694 4246 margot.cowhig@KPMG.co.uk 07920 274 856



Mark Brooks
Head of Press
Tel: 020 7808 1312 07917 506 683
Fax: 020 7222 7585
http://www.napf.co.uk


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