VIT44700 - Specific issues: Funded occupational pension schemes: Effect on trustees
A trust-based pension scheme is represented by its trustee(s). A scheme, through its trustees, may make taxable supplies by, for example, opting to tax supplies of property. The trustee(s) of a scheme making taxable supplies may be VAT registered.
If it is VAT registered, a trustee can treat as its input tax VAT incurred on goods and services used, or to be used, for the purposes of its business. Where a trustee makes exempt supplies their recovery of input tax is only possible to the extent that they make taxable supplies.
However, if the trustees are themselves VAT registered, they may treat the tax incurred on services connected with the continuing management of the scheme as their input tax. Any claim is subject to the normal rules. This could mean that not all the tax on the management services can be recovered because the trustees may also make exempt supplies or be engaged in non-business activities.
If a pension scheme trustee contracts with an employer to make a taxable supply of running their pension scheme on their behalf, any input tax that the trustee incurs on services that are used by it to make the onward taxable supply to the employer will be deductible. This applies even where the trustees’ contract for supplies of legal or actuarial services is specific to the trustees’ activities and performed in the interests of the trustees, provided that those services are used by the trustees to make their onward supplies to the employer. This is not affected where the trustees’ interests potentially conflict with those of the employer.
In the case of defined contribution (DC) pension schemes, many investment and administration services supplied in respect of these schemes will be exempt. Guidance on determining whether this applies in any specific case can be found in VATFIN5350. However, some services fall outside the exemption. Where trustees incur such costs, the above guidance still applies to the extent that trustees are making a taxable supply to the employer.