VAT for Pension Funds

We advise trustees and their funding employers on appropriate VAT mitigation strategies

Recent decisions of the Court of Justice of the European Union (CJEU) and policy changes announced by HMRC require pension trustees and funding employers to reconsider the way costs of administering and managing pension schemes are dealt with in order for this to be VAT efficient.

Most employers and pension schemes should be able to enjoy a reduced VAT cost as a result of these court cases and policy changes. However, at the same time, HMRC is adopting a much stricter approach with effect from 1 January 2018, which could result in some employers and pension schemes suffering a higher VAT cost if current arrangements do not satisfy HMRC’s revised policy.

What has changed?

The CJEU held in Wheels that it was correct that VAT was charged on the management of defined benefit pension schemes. However, the CJEU later held in ATP that the management of defined contribution pension schemes should be exempt from VAT. UK legislation will be brought into line, and managers should not be charging VAT in respect of qualifying defined contribution (DC) schemes.

The CJEU also held in PPG that an employer was entitled to recover VAT on both the administration and management of its pension scheme in line with its other overhead costs. Previously HMRC had restricted VAT recovery to only administration, and allowed a 30:70 split for a mixed fee; HMRC has recently agreed that organisations can continue to adopt this, but this will be withdrawn from 1 January 2018.

We can help

Our experienced VAT team work closely with our Pension Funds team to advise both trustees and their funding employers on the most appropriate VAT mitigation strategies. We understand the different VAT regimes applied to the different funding employers across all sectors, and work with all parties to establish the most appropriate solution.

We can help you to understand the changes and the impact on both the employer and the pension scheme, including quantifying the impact of the changes. We can review the potential alternative structures for regulatory and VAT effectiveness, review contractual changes proposed, and obtain clearance from HMRC if there remains any doubt in any area.

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