NAPF tax case Wheels into the ECJ

The dispute is over whether occupational defined benefit (DB) pension funds should have to pay VAT on investment management services. The NAPF will be hoping to use the ruling in a previous case as evidence for why DB schemes should not pay VAT on investment management services.

In 2008, a case known as the JP Morgan Fleming Claverhouse Investment Trust ruling, also heard at the ECJ, stated investment trusts should be exempt from paying VAT on investment management services.

The challenge against HMRC has been jointly brought by the NAPF and Wheels Common Investment Fund (WCIF) together with its underlying Ford schemes, which provides pensions for Jaguar, Ford and Land Rover. The WCIF has £6bn in assets under management.

A tribunal hearing will now be held in London between the February 10-15, 2011 to allow the ECJ to interpret the scope and meaning of that exemption.

A ruling in favour of the NAPF and WCIF could mean that DB pension funds no longer have to pay an estimated £100m a year in VAT. Backdated claims covering a number of years could be made in the case of some funds.

The NAPF’s chief executive, Joanne Segars, said she believes there is a strong argument to allow DB schemes to be exempt from paying VAT on the services. “A successful outcome would benefit pension scheme members by cutting running costs and boosting the funds available for investment."

The Claverhouse case is one of the few retrospective claims available to pension funds is. A significant number of related VAT cases have all been stayed until all appeals behind the Wheels case have reached a conclusion.

Speaking to Pensions Week in 2009, Richard Iferenta, indirect tax partner at KPMG UK, said that any outcome could be magnified by the UK’s High Court decision in May 2009 that compound interest must be paid by HMRC on claims for overpaid VAT.

Known as Fleming claims, after the Fleming/Conde Nast which forced HMRC to repay all taxpayers who had overpaid VAT between 1973 and 1996, irrespective of when they realised they had overpaid, the compound interest element could see any tax claims tripling for HMRC.