The changes follow the decision of the Court of Justice of the European Union (CJEU) in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) (PPG).

HMRC published a brief in November 2014 explaining that as a result of the PPG judgment, it was changing its policy on the recovery of input tax in relation to the management of pension schemes. This meant that there are circumstances where employers may be able to claim input tax in relation to pension schemes where they could not do so previously.

The earlier brief set out the conditions which must be met in order for this to be applicable.  HMRC also set a transitional period, which was due to end on 31 December 2016.

In its latest brief, HMRC says that transitional period has now been extended until 31 December 2017, explaining it has taken longer than expected to reconcile the court decision with pension and financial service regulations, accounting rules and emerging case law.

This means that taxpayers may continue to use the VAT treatment outlined in VAT Notice 700/17: Funded Pension Schemes until 31 December 2017.

HMRC says that towards the end of this period it will be reviewing this position and consider the need for a further extension if necessary.

The new brief acknowledges that some taxpayers may have already made changes to their structure and/or contractual arrangements to comply with the judgment. Provided the employer and pension scheme trustees agree and both apply the same treatment, HMRC says these taxpayers may continue with those arrangements. If they wish, they may choose to revert back to the previous treatment during the transitional period.

The guidance that HMRC was intending to publish on possible options for recovery has currently been put on hold whilst the department fully considers the wider implications of the options being proposed.

In the meantime, VAT can be recovered on fund management costs in line with the guidance laid out in the previous Briefs. Taxpayers are advised, however, that adopting alternative structures to comply with the VAT requirements could have wider implications, in particular in respect of regulatory requirements and corporation tax deductions.

Darren Mellor-Clark, who specialises in financial services VAT at law firm Pinsent Masons, said that the extension would be 'received with mixed views by businesses', particularly those that had already invested in preparing for the changes.

'An extension, now, seems the only option, given that we are less than three months from the expiration of the deadline with significant issues still to be bottomed out. However, businesses will be frustrated by HMRC's continuing lack of progress on this issue. Considerable time and cost has been invested by firms in preparing for the changes, and they will be concerned now whether this has been a waste of time.

'This is the third extension granted by HMRC in relation to this issue, and it seems reasonable to be concerned that it is in danger of taking up permanent residence in the long grass,' he said.

The most recent brief, Revenue and Customs Brief 14 (2016): VAT, Deduction of VAT on pension fund management costs following Court of Justice of the European Union decision in PPG is here.

The original brief, Revenue and Customs Brief 43 (2014): VAT on pension fund management costs is here.

VAT Notice 700/17: funded pension schemes is here.