VAT on pension costs: HMRC extends deadline to 31 December 2017


Last year, HMRC published the second of two briefing notes prompted by the PPG Holdings case. The European Court of Justice had ruled that pension scheme employers could, generally speaking, recover the VAT which they paid on pension management services costs – investment services included.

This ruling raised issues for HMRC, whose practice has been to let employers recover VAT incurred on scheme administration costs but not on investment costs. Where a single invoice covers both types of service, HMRC’s approach has been to apply a “30:70” split – deeming 30% of the invoice to relate to administration services (so that 30% of the VAT is recoverable).

Following the European Court’s decision, HMRC published two briefing notes whose combined effect was that:

  • there would no longer be a difference in the treatment of administration and investment costs, so enabling the employer to recover VAT on both. However, this requires the employer to be a party to the contract between the service provider and the trustees. Making the employer a party to the agreement raises some specific issues;
  • in the meantime, HMRC’s current practice (of allowing VAT to be reclaimed on the basis of a 30:70 “split” between administration and investment services) would remain in place until 31 December 2015; and
  • further HMRC guidance would follow.

The deadline of 31 December 2015 was extended last October to 31 December 2016.

Extension to 31 December 2017

The latest HMRC briefing, published yesterday, extends this deadline by another 12 months – this time, to 31 December 2017. The update then adds:

“Some taxpayers may have already made changes to their structure and/or contractual arrangements to comply with the judgment. Provided the employer and pension scheme trustees agree and both apply the same treatment, these taxpayers may continue with those arrangements. If they wish, they may choose to revert back to the previous treatment during the transitional period.”

Please do not hesitate to speak with your usual Linklaters pensions contact if you would like to discuss this further.