Updated guidance on VAT recovery on pension scheme services

HMRC has changed its guidance on when employers can reclaim VAT on services connected with funded workplace pension schemes.

In the past, HMRC treated administration services and investment services differently. Employers could usually reclaim the VAT on administration costs, even if the services were provided to the pension scheme rather than directly to the employer.

If an investment manager charged a single fee covering both investment management and administration, HMRC generally allowed 30% of that fee to be treated as administration costs, meaning the employer could reclaim the VAT on that portion.

Under the new guidance, employers can only reclaim VAT if they are the party that contracted for the services. If the pension scheme or its trustees purchase the services instead, the employer can no longer reclaim the VAT.

Although this change is likely to increase costs for employers, there is still a possible solution. HMRC has indicated that pension schemes or trustees may be able to recharge the administration costs to the employer. If this is done correctly, the employer may still be able to recover the VAT on those costs.

Contact us for more help and advice relating to this update.