UK - A legal victory allowing a professional trustee company to claim a value-added tax (VAT) refund on costs incurred while acting for a scheme in wind-up, could trigger "millions" more claims according to London-based  law firm Sacker & Partners.

The law firm revealed the successful appeal by Capital Cranfield Trustees against HM Revenue & Customs (HMRC) over VAT charges means independent trustees in a similar situation - mainly those which are registered for VAT purposes - can claim up to three years of VAT refunds.

Sackers said the statutory ruling by the London VAT Tribunal, relating to Capital Cranfield's role as an independent trustee for the Kenrick and Jefferson Group Pension Plan when it was in wind-up, was an example of a successful marriage of law and commonsense.

Prior to the ruling, trustees of schemes where the sponsoring employer had ceased trading could no longer claim back VAT charges because pension schemes with a solvent sponsor can only claim refunds through an employer who is registered for VAT.

Charles Goddard, managing director of Capital Cranfield's wind-up business, said: "This was a murky area of law that required clarification. I am extremely pleased with the ruling as it is fair - protecting individuals from being kicked when they are down."

Katherine Dandy, a partner at the law firm, said the appeal had highlighted how this aspect of the law was "fundamentally flawed" and claimed HMRC's policy of offsetting VAT costs for trustees while a company was in business, but to stop when it is no longer registered for VAT, for example through insolvency, was "unfair and inconsistent". 

She added: "The ruling has potentially wide ranging ramifications for other pension schemes - it is difficult to quantify but we would expect the claims going forward to run into million."

The tribunal's decision is the latest legal challenge to the UK government's policy on whether VAT should be charged on services to pension schemes, following the judgement by the European Court of Justice in the JP Morgan Claverhouse case in June 2007.

The ECJ ruled that the "management of special investment funds as defined by Member States" should be exempt from VAT, which led the European Commission to launch a review of the existing legislation relating to VAT on financial services and insurance companies.

In December, the National Association of Pension Funds also urged UK pension schemes to launch a co-ordinated legal challenge against HMRC over VAT exemption as it claimed the ECJ verdict provided a strong case that pension funds should not have to pay VAT on investment management services.

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