The recovery of VAT associated with pension scheme management and investment advice has been unclear for some time. HMRC has issued various statements, some now retracted, that have left sponsoring employers, pension trustees and pension advisors a little bewildered. Fortunately, HMRC have now provided some clarity in relation to the recovery of VAT associated with pension schemes.
Interestingly, the “70/30” concession that has been relied upon for years and was threatened to be withdrawn is still available. This allows sponsoring employers of defined benefit schemes to reclaim 30% of the VAT incurred. However, HMRC do now acknowledge that alternative options are available, following the various cases that have passed through the courts. From experience, these may allow a greater recovery of VAT. The options include VAT grouping, recharges from trustee to the employer, tripartite arrangements and the use of tripartite arrangements by holding or service companies.
Each one of these options brings its own challenges and complexity. The advantages and disadvantages of each VAT recovery option should be considered by pension fund managers, pension fund trustees and sponsoring employers.
In all of this, we shouldn’t forget about whether pension management services received should be subject to VAT or not. It was recently announced in Revenue and Customs Brief 3 (2017) that the VAT liability associated with pension fund administration services supplied by an insurer will be liable to VAT at the standard rate with effect from 1 April 2019. However, this is subject to the type of fund that they are managing. HMRC are expecting most services provided to a defined contribution scheme to remain exempt from VAT. For a defined benefit scheme the VAT cost may increase, emphasising the need to review the pension structures operated, their associated supply chain of advisors and the overall recovery of VAT.
Customs Connect can help to assess and implement the recovery option that is the most appropriate and compliant for your business. If you would like to discuss this topic in more detail please contact Gavin Tucker, Director of VAT, 0161 813 1987.