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VAT on pension schemes – final closure – or is it?

By Ensors Team
13th Nov 2017

On the 1st November VIT44600 to VIT45400 was published, ending the transitional period on the consideration of the VAT treatment of pension scheme costs.

This situation stems back from November 2014, where HMRC published Revenue and Customs Brief 43 (2014): VAT on pension fund management costs.

In 2016 the transitional period was extended to 31st December 2017 and it was at this time we issued this briefing.

VIT44600 to VIT45400 which was issued earlier this month, is anticipated to be the final update on the matter. The notice allows the continuation of the existing rules. This means the continued adoption of the VAT treatment outlined in VAT Notice 700/17, but in addition, the option to also use the newer options following PPG. The method you choose to apply will depend on whether the scheme or the employer directly contracts and pays for the services.

These services can be broadly split between Investment costs and Administrative costs and the full notice gives a breakdown of each category.

To summarise the main points:

Investment costs

The newer options following PPG means there are now circumstances where employers may be able to reclaim VAT on investment costs.  However to do this you must:

  • Determine who is the recipient to the supply
  • Who pays for the supply
  • And ensure the employer is a party to the contract

(Note: Tripartite agreements are only needed for DB schemes as a DC employer is not considered to bear the same level of risks/benefits associated with the performance of the scheme.)

The notice does not give clarity on the corporation tax treatment of these costs in the company  and also instances where a tripartite agreement could be regarded as a conflict of interest, e.g. audit, legal and actuarial services.

Administration costs

This is unchanged – VAT incurred on setting up the scheme and the day to day administration costs can be treated as input tax, even though the trustees are responsible for the general running of the scheme, and where the trustee contracts and pays for the services.

To secure the input tax recovery the supplier must address the invoices to the employer.


Where the employer incurs the cost, they may recharge this to the scheme, but for investment fees, VAT must be charged, in many instances the VAT may not be reclaimable by the scheme.

The notice does not give clarity on the issue of VAT grouping and joint and several liability.

The notice also cites certain specific issues to consider, as follows:

  • Where the employer is the sole trustee
  • Where third parties issue invoices for admin and investment fees

In summary

Any change in the way you currently account for VAT, should be after careful consideration of the level of irrecoverable VAT within the scheme, and also after close consideration of the full VAT notice which can be accessed here please scroll down to VIT44600 through to VIT45400. Professional advice should be sought to ensure compliance with the new rules.