As reported in our January 2015 VAT update, in Business Brief 43 (2014), HMRC confirmed that there are circumstances where employers may claim input tax in relation to pension schemes, if it could be demonstrated that the relevant services were supplied to the employer. However, HMRC indicated that the question is fact sensitive and dependent on “contemporaneous evidence that the services are provided to the employer and, in particular, the employer is a party to the contract for those services and has paid for them”1 .
HMRC has been under pressure to clarify its remarks and has now issued Business Brief 08(2015) which sets out its view on the extent to which tripartite contracts (between service providers, employers and scheme trustees) are likely to be accepted by HMRC as showing that service provider’s supplies are made to the employer and therefore suitable for applicable input tax deductions.
In outline, an employer may be able to deduct VAT incurred where the contract provides that:
- the service provider makes its supplies to the employer
- the employer pays for those services
- the service provider will seek payment from the employer if it fails to pay
- both the employer and the pension scheme trustees are entitled to seek legal redress in the event of breach of contract
- the service provider will provide fund performance reports to the employer on request; • the employer is entitled to terminate the contract
- the pension scheme trustees agree that it is the employer who is entitled to deduct any VAT incurred on the services.
Taxpayers are likely to pay close attention to this guidance when setting up new service provider contracts or reviewing existing ones.
To read Business Brief 08(2015) click here.