HMRC announces a new VAT bill for insurers in relation to services to DB schemes

In (the unexpected) Revenue and Customs Brief 3 (2017) issued on 5 October 2017, HM Revenue & Customs has announced a change in its policy concerning the VAT treatment of pension fund management services provided by insurance companies.

HMRC states that the long-standing policy of allowing insurers to treat their supplies of pension fund management services as VAT exempt insurance will be discontinued on 1 January 2018.  However, supplies to “special investment funds”, a category under EU VAT law which includes DC pension schemes, will continue to be treated as VAT exempt.  This is by virtue of the European Court of Justice decision in ATP Pension Services - and in line with HMRC’s stated position on such funds in Revenue and Customs Brief 44(2014).

This change of policy means that, from 1 January 2018, a wide range of services provided to DB schemes by insurance companies (likely including some investment management fees), will no longer be VAT exempt.

Comment

This may increase costs for insurance companies with the possibility that they may try to pass on some of these costs to DB pension schemes.  It may also add to the complexity of VAT recordkeeping for pension scheme related costs.  Hopefully over the coming weeks some clarity will emerge as to the extent of this unwelcome new VAT charge that DB pension schemes may have to bear.

HMRC is also due to provide the industry with an update on its position on VAT and pension scheme costs more generally (see Pensions Bulletin 2016/36) and we still await this.

Providing support to employees on financial matters without being authorised

The Pensions Regulator and the Financial Conduct Authority have jointly published a four-page factsheet for employers and trustees who may wish to help employees with financial matters but are not sure how far they can go without having to be authorised by the FCA.

The factsheet covers promoting pensions, promoting other financial workplace benefits and how to avoid giving advice in areas for which FCA authorisation would be required.

Comment

This is a straightforward read and is one of the deliverables from the Financial Advice Market Review which concluded with a series of recommendations in March 2016 (see Pensions Bulletin 2016/10).

This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law.  For further help, please contact David Everett at our London office or the partner who normally advises you.