Pension schemes and VAT: still no solution

HMRC has published further guidance on the VAT treatment of pension scheme services, which has been eagerly anticipated by the industry. Whilst clarifying some points, the guidance unfortunately leaves a number of issues unclear.

The good news is that the new guidance helps in the short term by extending the current transitional period by a year to 31 December 2016, allowing established invoicing practices to continue for now. Further guidance should follow later this year. 

New guidance 

HMRC notes that its position on tripartite agreements has not changed since the previous guidance was published. However, it has made it clear, following concerns raised by the industry, that asset management costs incurred under the tripartite agreement will not attract a corporation tax deduction for the employer. 

Other options to tripartite agreements are mentioned briefly in the guidance:

• the trustees registering for VAT and supplying the employer with the service of running the pension scheme (based on services they have received from third parties); and
• adding a corporate trustee to the employer’s VAT group. 

However, neither is entirely satisfactory. The indication from the guidance is that a complete VAT recovery may not always be made – particularly where VAT is incurred on asset management services. 

HMRC notes that it is still considering other representations that it has recently received and will publish further guidance later this year. In the meantime, it has extended the transitional period to 31 December 2016.

Comment 

It is disappointing that, well over two years after the PPG decision was published, HMRC has still not provided definitive guidance on this subject. Issues that have not yet been resolved include:

• the impact of the PPG decision on other types of service (such as legal, actuarial and accounting services);
• the impact of the PPG decision on VAT recoverability relating to DC and hybrid schemes; and
• whether the potential solution of adding a scheme rule to clarify that it is run for the employer’s benefit, suggested by the Association of Pension Lawyers, is workable. 

Until the position is settled, it is difficult for employers to decide how to proceed. Whilst the extension of the transitional period does at least provide some respite, we hope that the further guidance promised later this year will settle this tricky area once and for all.