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HMRC internal manual

VAT Government and Public Bodies

Section 33 bodies: local authorities: pension concession

This administrative concession applies where local authorities cannot set up separate trustees for their pension fund.


It is not possible to allow an authority that has exceeded the insignificance test (see VATGPB4510) to recover exempt input tax as this would give the authority an advantage over private pension funds who also suffer this restriction. However, we recognise that the increased amount of exempt input tax borne by ‘administering authorities’ may have a distortive effect on their s33 recovery calculation.

Additionally an authority that only administers a pension scheme for its own employees may also suffer a distortion to their recovery method, albeit to a lesser extent. Like administering authorities this arises if they are prevented by legislation from placing the pension fund assets with separate trustees.

The concession

Authorities who are prevented from setting up separate trustees for their pension fund may apply a concession to their pension fund expenses under which:

  • VAT incurred on the expenses of the pension fund is reclaimed in accordance with the guidance on local authority pension fund administration and investment expenses
  • a separate record is kept of these expenses, and
  • when the percentage of exempt input tax is calculated for the section 33 recovery method, the expenses relating to employees for whom the authority is obliged by law to provide a pension scheme are to be excluded from both the numerator and the denominator of the calculation.


The following conditions apply:

  • The authority must obtain the prior HMRC written agreement that the concession will form part of the authority’s s33 recovery method. It should be agreed at the same time as the method.
  • The concession is only available to authorities who are prevented by legislation from setting up separate trustees for their pension fund.
  • VAT relating to persons for whom the authority is not obliged to provide a pension fund, such as admitted bodies, must be included in the section 33 calculation.
  • All VAT relating to persons for whom the authority is obliged to provide pensions is to be excluded from the s33 calculation. This includes VAT incurred on the non-business and taxable activities, whether they are administration or investment activities. This condition is necessary because to allow the exclusion of exempt input tax alone would give the administering authority an advantage over non-administering authorities and over private pension funds. The reason for this concession is to put administering authorities on a level footing with other authorities - not to give them an advantage.
  • Sufficient records must be kept to enable the pension fund expenses to be easily identified.
  • An authority who wishes to operate the concession will be required to include it in their section 33 recovery method agreement.
  • The concession has been available since 1 April 1998 and must operate for at least one year and coincide with a complete tax year.

Other matters

It is anticipated that most administering authorities will use the concession. However, any abuse or misapplication may result in its withdrawal in particular cases.

The purpose behind the concession is to allow authorities to calculate whether they have exceeded the de minimis limit without including the VAT relating to the pensions that they are both obliged to provide and for which they are unable to set up separate trustees. If, having excluded these pension fund expenses, the authority remains de minimis it will be entitled to recover all its VAT including that relating to the exempt pension fund activities.

If, however, they exceed the de minimis limit even with these pension fund activities excluded, they will not be able to recover the VAT incurred on any of their exempt activities, including that relating to the pension fund. If exempt input tax has been recovered prior to the authority exceeding its de minimis levels, the authority will be required to repay this VAT to HMRC.

The concession is not a condition of using the section 33 recovery method published in Notice 749 ’Local authorities and similar bodies’. (external users can find the notice at…). An authority can choose not to use it.