In a welcome update for employers operating a defined benefit (DB) pension scheme, HMRC has announced a change in policy with regards the VAT treatment of costs incurred by these businesses. The change could allow businesses to submit claims for VAT previously blocked in the last four years.
HMRC’s previous policy had been to allow employers to recover VAT incurred on the administration of their pension funds but only recover VAT on the asset management costs if they paid and contracted for the investment services. As a result, most businesses with DB schemes put arrangements in place to have the pension trustees supply admin services to the employer or to put the trustees and the employer in a VAT group.
However, even then, HMRC took the view that the investment costs were incurred for the benefit of both the trustees and the employer and so the VAT on the asset management services had to be apportioned between the two – meaning input tax attributable to the trustees was still irrecoverable.
HMRC has updated their policy so that from now all input tax incurred on asset management costs is fully attributable to the employer and recoverable in full. In addition, if trustees are supplying fund management services to the employer and charging for those, the trustees will be able to deduct input tax incurred for the purpose of making those services which they haven’t been able to do previously.
The new policy has effect immediately and HMRC will allow claims for previously non-recoverable input tax in the last four years.
Businesses that think they may be impacted by this policy change and who may have the opportunity to make a claim for historic VAT costs should get in touch with myself or their usual HaysMac contact.
Dougie Todd, Partner and Co-Head of VAT, HaysMac
