Following the judgment of the Court of Justice of the European Union (CJEU) in the case of PPG Holdings, the VAT incurred on administration and investment management expenses was ruled to be reclaimable, in certain circumstances. This ruling prompted a change of policy by HMRC which has left advisors and businesses somewhat confused on the VAT treatment of such expenses.

1. Following the judgment of the Court of Justice of the European Union (CJEU) in the case of PPG
Holdings, the VAT incurred on administration and investment management expenses was ruled to be
reclaimable, in certain circumstances. This ruling prompted a change of policy by HMRC which has left
advisors and businesses somewhat confused on the VAT treatment of such expenses.
Reclaiming VAT on pension
scheme costs – what should you be
thinking about?
Background
In March 2014, the CJEU released its judgment in PPG Holdings BV
(PPG) (Case C-26/12), in which it ruled that, in certain circumstances, an
employer is entitled to reclaim VAT incurred on the administration and
investment management expenses of a pension fund.
As a result of this judgment, HMRC issued Revenue & Customs Brief
06/14 which set out a change in policy with regards to the VAT treatment
of such expenses, in circumstances where the employer has received the
supplies and the supply is not limited to investment management services.
In Revenue & Customs Brief 22/14, HMRC state that they are
consulting with interested parties. Meanwhile, business can choose to
follow the new policy pending further clarification (expected in the
autumn). This leaves advisors and businesses with uncertainty of how to
treat the management and investment expenses for VAT purposes.
Current position
The table below sets out our view of the current position with regard to
the VAT treatment of administration and investment management
expenses incurred in respect of pension funds.
Expense VAT treatment Comment
Management expenses
Incurred by employer not
passed on to fund
Recoverable No change
Incurred by employer and
passed on to fund
Recoverable but
output VAT due
Unfavourable
Incurred by fund Dependent on the
fund's VAT
position
No change
Management and investment expenses
Incurred by employer not
passed on to fund
Recoverable
No 70:30 split
Favourable, but
note HMRC
argument about
where the most
direct link is
Incurred by employer and
passed on to fund
Recoverable but
output VAT due
Unfavourable if
recharge included
non-VAT costs
Incurred by fund Dependent on the
fund's VAT
position
No change
70:30 split?
Investment expenses
Incurred by employer not
passed on to fund
Recoverable
No 70:30 split
Favourable, but
note HMRC
argument about
where the most
direct link is
Incurred by employer and
passed on to fund
Recoverable but
output VAT due
Unfavourable if
recharge included
non-VAT costs
Incurred by fund Dependent on the
funds VAT
position
No change
70:30 split?
What should you be thinking about?
 Decide whether to base your filing position on the previous guidance
or follow the new guidance issued by HMRC.
 Review the way in which administration and investment management
contracts are drafted to ensure they are future proof.
 Review the impact of the new policy on PPG claims already made and
the likelihood of repayment, reassessing litigation and case
management strategies accordingly.
 Ensure that the time limits for the submission of compound interest
claims under the Littlewoods restitution principle are not overlooked.
Contact one of our experts for further information:
Contact Name
Karen Robb
T 020 7728 2556
E karen.robb@uk.gt.com
Issued: July 2014
• The CJEU judgment in PPG ruled that VAT incurred on
administration and investment management is
recoverable, in certain circumstances.
• HMRC issued Brief 06/14 which sets out the resulting
change in its policy.
• The current position remains unclear so we provide a
matrix to provide clarification of the VAT treatment.