HMRC extends transitional period for deducting VAT on pension scheme costs

HMRC has announced a 12 month extension to the transitional period under which an employer is entitled to deduct VAT paid on services relating to the administration of defined benefit pension schemes and the management of their assets.

HMRC appears to have encountered a number of issues in its attempt to reconcile the European VAT Court’s decision in PPG Holdings, with pension and financial service regulations, accounting rules and the implications of corporate tax deduction.

Ian Bell, RSM Head of Pensions said: 
‘Trustees of pension schemes and sponsoring employers have, for some time, been anxiously awaiting some further clarification from HMRC of its policy regarding VAT recovery conditions of employers and trustees of DB pension schemes. 

‘When you consider that the European Court of Justice decision in PPG Holdings dates back to 18 July 2013, it beggars belief that we still do not have any definitive guidance which takes account of not only the VAT position, but also contractual, regulatory, independence, accounting and direct tax issues. 

‘Surely it’s not beyond the wit of the Treasury and HMRC to facilitate a joined-up solution, although there could of course be a further underlying objective that following the Brexit vote, delaying any decision may mean that the case law never has to be implemented at all. 

‘The transitional period, which was due to end on 31 December 2016, has now been extended to 31 December 2017. Given the contractual, regulatory, independence and accounting issues which HMRC will have to reconcile, we are unlikely to see any further guidance on VAT recovery of pension costs until at least Autumn 2017 or perhaps it is now in the long grass never to be seen again.’