It’s a while since we last commented on VAT on pensions but we return with some good news which HMRC have quietly slipped out in updated content to the VAT Manual.
Back in 2014, following the PPG case, HMRC proposed withdrawing their practice of allowing employers to recover VAT on charges on administration costs for DB pensions. The debate over various alternative VAT arrangements has rumbled on since then, with HMRC repeatedly extending the transitional period before their new approach kicked in. It’s fair to say that it was proving very difficult to make the alternatives (such as tripartite contracts, VAT grouping and onward supply of services by the employer to the trustees) work from a legal, tax or regulatory viewpoint.
The updated guidance now confirms that the old practice can continue to be used, including the 70/30 rule of thumb that allows employers to recover 30% of VAT incurred on combined investment and administration services. This does not block the use of other arrangements which may enable an employer to recover more VAT, provided the other issues surrounding their use can be satisfactorily resolved.
Employers and trustees can perhaps breathe a collective sigh of relief that this long running saga now seems to have reached a final conclusion. A final check on the way VAT is recovered on DB schemes may still be appropriate, just to make sure that the optimum arrangements are in place for the future.