On 25 November 2014, HMRC confirmed that employers could deduct as input tax VAT on both the administration costs, and investment management costs, of running their pension schemes. The two supplies should not be treated differently for VAT purposes.
Input tax deduction will be allowed, provided:
- the employer is the recipient of the supply (rather than the trustees)
- the employer is party to the contract for the services
- the employer has paid for the services.
From 31 December 2015, the existing simplification measure whereby employers can obtain input tax deduction for 30% of the VAT charged on single, combined, invoices will be withdrawn. This represents a further extension of the “transitional” period.
HMRC has also confirmed that defined contribution pension schemes will be regarded as special investment funds pursuant to the VAT fund management exemption, provided certain conditions are met. Primarily, it will be necessary to demonstrate that the investment risk, which is spread over a range of securities, will be borne by the beneficiaries.
It is a welcome development that HMRC now accepts that administration and investment management services (often provided by a single third party supplier) should, for VAT purposes, be treated consistently as far as the employer pension scheme provider is concerned. Difficulties may, however, arise in demonstrating to HMRC that the employer receives the supplies in question.