HMRC has updated its internal guidance to staff on VAT recovery for defined benefit pension (DB) schemes, but has so far failed to promote the change to employers, trustees and pensions providers.
Trustees of pension schemes and sponsoring employers have, for some time, been anxiously awaiting further clarification from HMRC of its policy regarding VAT recovery conditions of employers and trustees of DB pension schemes.
This follows the CJEU decision in Fiscale Eenheid PPG Holdings BV which concerned an employer’s entitlement to deduct VAT paid on services relating to the administration of defined benefit pension schemes and the management of their assets.
HMRC had previously announced an extension to the transitional period under which an employer is entitled to deduct VAT paid.
The current transitional period, which affords employers full VAT recovery on administration management costs as well as 30/70 split recovery relating to a mixed supply of investment and administration management services, was due to expire on 31 December 2017.
HMRC has come to the view that the existing rules for input tax deduction (including the 30/70 split) will continue to be available going forward, together with the newer options following PPG. The option to be applied will depend on whether the employer does or does not directly contract and pay for the services used to run the pension scheme.
The updated guidance outlines rules that can be used for services used to run an occupational pension scheme where an employer does not directly contract and pay for those services; and rules that apply following the judgment in PPG that can only be used for services received by an employer who directly contracts and pays for them.
Commenting on the publication of the internal guidance, Ian Bell, head of pensions at RSM said:
‘Whilst HMRC’s change in policy will no doubt be welcome, it is somewhat concerning that the updated guidance has only been made available some eight weeks before the pre-defined transitional period was due to expire, and even then, only by means of HMRC’s internal manuals. We have yet to see anything published via any public forum, for example through an HMRC briefing or information notice. This is poor form and HMRC should do better.’