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HMRC internal manual

VAT Insurance

VAT treatment of pension fund management services provided by insurers

The policy of allowing insurers to treat all pension fund management services as exempt from VAT under the insurance exemption is to be discontinued. This policy change applies from 1 April 2019.

This does not impact on services provided by insurers under contracts of insurance, which remain exempt under the insurance exemption.

S88 can apply to a change in the VAT rate or a change to liability – for a change of liability see VATTOS7220.

Background

HMRC policy has previously allowed all pension fund management services provided by regulated insurance companies to be exempt from VAT. This treatment arises from the UK’s original application of the insurance exemption to all of an insurer’s regulated insurance activities, including the management of pension funds.

However, the Court of Justice of the European Union (CJEU) judgement in Card Protection Plan (CPP) made it clear in 2005 that the EU insurance exemption applies only to the underwriting of risk and doesn’t apply to other supplies made by insurers.

UK policy was not changed immediately, reflecting the ongoing uncertainty concerning the current and future treatment of pension fund management services due to the EU Commission’s review of the VAT treatment of financial services and ongoing CJEU litigation in this area.

In ATP Pension Services (C-464/12) (ATP), the CJEU found that a pension fund which pooled investments from a number of defined contribution occupational pension schemes qualified as a special investment fund (SIF) for the purposes of the VAT exemption for fund management services. Prior to this judgement HMRC did not consider pension funds of any kind to be a SIF.

In light of the ATP judgement, HMRC now accepts that certain pension funds are SIFs for the purposes of the fund management exemption, so that the services of managing and administering those funds are, and always have been, exempt from VAT. The required characteristics for a pension fund to be a SIF for the purposes of the fund management exemption are detailed in VATFIN5120.

Pension funds that do not have all of the required characteristics are not SIFs and so are not within the scope of either the insurance or the fund management exemption. As such, the policy of allowing insurers to treat their supplies of non-Special Investment Fund (SIF) pension fund management services as VAT exempt insurance is discontinued from 1 April 2019.