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HMRC internal manual

VAT Input Tax

Specific issues: employers with funded pension schemes - arrangements where the employer does not directly contract and pay for the services

A VAT registered employer that establishes a funded occupational pension scheme for its employees can treat VAT incurred in setting up the scheme as its input tax. It can also treat VAT incurred on the day-to-day administration of the scheme as its input tax even where the trustee is responsible for the general management of the scheme under the trust deed and where the trustee contracts and pays for the services supplied.   However, in such circumstances, trustees must arrange for invoices to be made out by the supplier in the name of the employer so that employers hold tax invoices made out in their own name in order for them to be able to deduct VAT. 

Investment costs must be treated differently to administration costs. VAT on investment costs can only be deducted by the employer when it contracts with the supplier directly for the services and pays for them itself – see VIT 45400.

Administration services include:

  • making arrangements for setting up a pension fund;
  • management of the scheme, that is the collection of contributions and payment of pensions;
  • advice on reviewing the scheme and implementing changes to it;
  • accountancy and auditing relating to management of the scheme, such as preparation of the annual accounts;
  • actuarial valuation of the assets of a fund;
  • general actuarial advice connected with administration of the fund;
  • providing general statistics in connection with the performance of a fund’s investments or properties; and
  • legal instructions and general legal advice, including drafting trust deeds, insofar as it relates to the management of the scheme.

Investment services include:

  • advice connected with making investments;
  • brokerage charges;
  • rent and service charge collection for property holdings;
  • producing records and accounts in connection with property purchases, lettings and disposals or investments;
  • trustee services, that is services of a professional trustee in managing the assets of the fund;
  • legal services paid on behalf of representative beneficiaries in connection with changes in pension fund arrangements; and
  • custodian charges.

Where an employer incurs costs of the pension scheme, it may recharge these onto the trustees.  If the costs charged on are for administration services, the employer does not have to charge VAT on these costs, but where similar arrangements are adopted for investment services or other services connected with the pension fund’s activities, VAT must be charged.