HMRC has published a revised VAT policy on pension fund administration and investment management confirming that, subject to certain conditions being fulfilled, employers can deduct as input tax VAT on both the administration and investment management costs of running their pension schemes.
Background and previous policy
Previously, HMRC’s policy was to distinguish between costs relating to the setting up and day to day administration of occupational pension schemes, and costs relating to investment management.
HMRC allowed employers to deduct VAT incurred in relation to administration on the basis that these costs were overheads of the employer and therefore had a direct and immediate link to the employer’s business activities.
Employers were not, however, allowed to deduct VAT in relation to investment management costs as these related solely to the activities of the pension scheme.
In circumstances in which a single invoice was received covering both the administration of the pension scheme and the investment management, HMRC had in place a ‘simplification measure’ which allowed the employer to claim 30% of the VAT as relating to the administration of the scheme, and the pension scheme to claim 70% as relating to the investment management.
New HMRC Policy
Following a recent case HMRC has now changed its policy on the recovery of input tax in relation to the management of pension schemes on the basis that there are no grounds to treat administration and investment management costs differently.
Certain conditions must be met and in order to recover the input tax it must be demonstrated that:-
- The employer is the recipient of the services, rather than the trustees;
- The employer is party to the relevant contract for the services; and
- The employer had paid for the services.
HMRC has confirmed they will withdraw the 70/30 split simplification measure, although an extension until 31 December 2015 has been provided to the period during which employers may continue to use this split.
What should employers do now?
Employers may wish to restructure their arrangements to ensure that they fulfil the conditions set out above and can subsequently take advantage of HMRC’s revised policy.
For more information or advice, please contact one of our specialists below.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.