HMRC has published revised guidance for occupational pension schemes in its VAT Input Tax (VIT) manual. In a rare piece of good news for employers with DB pension schemes, HMRC has now agreed that current arrangements for recovery of VAT on pension costs can continue.

HMRC has been reviewing its rules since February 2014 (in response to the CJEU decision in the PPG case). During that period, HMRC has looked at various alternative VAT arrangements relating to DB pension schemes, and it had proposed withdrawing the existing arrangements used by most employers.

Prior to PPG, HMRC allowed an employer to deduct the VAT paid on pension administration services but not the VAT on pension investment services. HMRC has now confirmed that this arrangement will continue to be available going forward.

Under HMRC’s revised guidance an employer may, in certain circumstances, be able to change to a different arrangement and be able to deduct VAT incurred both on investment and administration services. However, each of these alternative arrangements may create other issues which mean they will not be suitable for many employers. We considered the various options in this article in September 2016.

Please note that the operation of and implications of these alternative arrangements are complicated and detailed tax and legal advice should be taken before entering into any new supplier arrangements for VAT purposes.