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HMRC internal manual

VAT Input Tax

Specific issues: Attribution of VAT on services received in connection with funded occupational pension schemes - arrangements that can be applied following CJEU decision in PPG

The policy on the recovery of VAT incurred in relation to the management of pension schemes  was revised following the decision of the CJEU in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) (PPG). The case concerned PPG’s entitlement to deduct VAT paid on costs relating to the administration of defined benefit (DB) pension schemes and the investment of their assets. The CJEU decided that, subject to certain conditions, the employer (PPG) was entitled to deduct the VAT it paid on services relating to both administration and investment of the assets of the pension fund. This was contrary to the position previously taken by HMRC, whereby the VAT on administration services was deductible by the employer but not the VAT on investment services.

Following the decision in PPG there are now circumstances where employers may be able to claim VAT incurred on investment services as well as administration services.

Before deciding whether the VAT on services may be deductible by an employer it is important to determine whether the services in question are supplied to the employer. In the case of funded occupational pension schemes, there are normally two potential recipients of the supplies: the employer and the pension scheme through its trustees. Determining which party is the recipient of a supply of services is fact sensitive and will depend upon the circumstances in which the transaction took place.

A fundamental criterion to consider is economic reality and the most useful starting point is to examine the agreements between the parties. The fact that a party pays for the supplies is not decisive, but it is an important indicator, particularly in cases where two parties use the same services.

The VAT incurred in relation to a pension scheme will not be deductible by an employer unless there is contemporaneous evidence that services were provided to the employer at the time and that the employer is a party to the contract for those services and has paid for them.

There will be some VAT bearing costs in relation to pension funds which the trustees must contract for because of pension regulations.  For some of these services, for instance investment services provided in respect of a DB scheme, the use of tripartite contracts may enable the VAT to be treated as incurred by the employer (VIT45400).

Alternatively, there are other contractual arrangements that businesses may wish to adopt that will affect entitlement to VAT deduction (VIT45420, VIT 45430 and VIT45450).