Pension funds lose VAT case against HMRC | PLSA
Pension funds lose VAT case against HMRC

Pension funds lose VAT case against HMRC

07 March 2013

The Court of Justice of European Union (CJEU) today ruled that UK workplace defined benefit (DB) pension funds are not special investment funds and are therefore not exempt from paying VAT on investment management services.

The judgment means that pension schemes will continue to pay about £100m a year in VAT and will not be able to make backdated claims to 1990 that could have totalled £2bn.

The long-running case against HM Revenue & Customs (HMRC) was brought by the National Association of Pension Funds (NAPF) and Wheels Common Investment Fund (WCIF), with its underlying Ford pension schemes.

The action was initiated in 2008 following a ruling in the European Court on JP Morgan Fleming Claverhouse Investment Trust plc. The Court stated then that investment trusts were special investment funds and should be exempt from paying VAT on investment management services.

The NAPF and WCIF brought the case because they believed that pension funds have similar characteristics and should have a similar exemption.

A Tribunal hearing held in London in February 2011 referred the matter to the CJEU to interpret the scope and meaning of the VAT exemption.

Joanne Segars, Chief Executive, NAPF, said:

“This has been a long struggle, and unfortunately the judgment is deeply disappointing. Pension funds were set up to be vehicles that are free from tax, and they should not be paying these VAT charges.

“The European Commission is currently reviewing the VAT Directive, and we will be making strong representations as to why the management of pension funds should be VAT exempt under the proposed change to the current VAT regime. We will be taking this matter up with the Commission as a matter of urgency."

Amanda Brown, Partner, KPMG, which advised the NAPF and WCIF on the case, said:

“This judgment is disappointing. The EU Commission’s own review of the EU VAT regime for financial services suggests that the management of pension funds will be treated as VAT exempt. I think the CJEU missed an opportunity to ensure that the current provisions reflect what is in practice the investment decisions that the vast majority of small investors take.”


Notes to Editors:

1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.

2. The Wheels Common Investment Fund (WCIF) has £7 billion in assets under management and is a multi-employer scheme which includes a number of Ford Motor Company Limited Pension Funds.

3. KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff.  The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  KPMG International provides no client services.

4. 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. This means that defined contribution pension schemes will not usually pay VAT on investment management services. Some defined benefit schemes also structure their investments in this way. Local authority funds can generally recover any VAT charged, including that on investment management fees.



Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]

Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]


Margot Cowhig, KPMG Corporate Communications, 0207 694 4246 or 07920 274856, [email protected]. KPMG Press Office: 0207 694 8773

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