This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.

HMRC invites claims for overpaid VAT
26 November 2014

HMRC invites claims for overpaid VAT

HMRC has issued the Revenue & Customs Brief 43/14, repositioning its interpretation of the CJEU's judgment in PPG Holdings BV (C-26/12), concerning the recovery of VAT incurred on pension fund management costs by employers.  The main points to note are:

  1. Payment is an important, but not decisive, indicator of which entity receives a supply (in practice the employer must pay);
  2. Employers must be a party to the agreement for services and pay for them;
  3. There is no need to differentiate between fund administration and investment management: the employer will obtain deduction if the recovery criteria are satisfied;
  4. The employer will need a valid VAT invoice;
  5. Any onward charge to the fund by the employer will be a taxable supply;
  6. The 70/30 split can be used until 31 December 2015 and HMRC will not be adjusting retrospectively where the employer obtained deduction, even though the new recovery criteria (payment, contracting, invoicing etc.) were not met;
  7. Businesses that already satisfied the new recovery criteria but recovered only 30% may claim retrospectively; and
  8. HMRC will now begin to consider claims by employers following PPG Holdings.

Bullet points 1, 2, 3 and 5 establish the entitlement criteria.  Not all employers presently deducting input tax will satisfy these, though some may already do so.

TRANSITIONAL PERIOD – ending 31 December 2015

Employers in the first cadre (not satisfying the entitlement criteria) may continue to deduct during this period on the 70/30 basis.  From 1 January 2016 no deduction at all will be allowed if the entitlement criteria are not met: contractual work will be needed.

Employers in the second cadre (already satisfying the entitlement criteria) will, of course, continue to deduct, but now on a 100% recovery basis. Furthermore, they are entitled to apply for 100% recovery retrospectively (i.e. go back 4 years for the 70% shortfall) plus interest (this being an official correction of error).