In previous editions of our pensions publications we have reported on HMRC’s approach to reclaiming VAT in relation to fees paid by pension schemes, particularly in the light of recent European decisions on the subject. Whilst a new possible approach was being considered by HMRC, it confirmed a transitional period under which the old system (whereby only VAT on investment costs was not reclaimable by the employer) would continue to operate. The transitional period originally ran until the end of 2015 and was then extended until December 2016.

Now, in Revenue Brief 14 (2016) HMRC has confirmed that the transitional period has been extended again for another 12 months (i.e. until 31 December 2017) while it considers the issue further.

Given the concerns that have been raised about HMRC’s previous proposals for dealing with the issue, it is hoped that this time will allow for a more practical solution to be introduced. Clearly Brexit issues could impact here as the approach being considered is because of European court cases which may not have any bearing once the UK exits the EU. Nevertheless, there is no suggestion that HMRC has extended the transitional period for this reason or indeed that it might affect the approach they come up with when that period ends.