Specific issues: third parties providing both management and investment services to funded pension schemes
A fund manager, property manager or professional trustee may be appointed to manage a scheme. Usually their charges will cover both management and investment services proper to the trust.
When this happens the employer must apportion the VAT on these services. This is because the employer receives only the management services for the purposes of their business. Therefore, they can only treat the tax on the management of the scheme as input tax. The employer must split the cost between management and investment services if the supplier issues a single tax inclusive invoice for both kinds of services.
HMRC accepts, by way of a simplification with the sector, that 30% of the costs apply to management services when a third party:
- provides both the pension fund’s management and investment services; and
- issues one single tax invoice.
Any employer who does not consider that 30% is a fair proportion of the supply to attribute to management services must provide evidence to HMRC to support their view.
A third party may themselves apportion their supply between investment and management services and issue separate invoices. When this happens the employer should treat the whole of the tax incurred on management services as their input tax.
If an employer claims input tax:
- on a separate invoice for management services and
- on a single invoice for both management and investment services
it may be that to apply 30% of the costs to management services will not give a fair and reasonable split. When the result of the apportionment is not fair the employer must use an alternative method. The alternative method should reflect the proportion of the supply attributable to management services. The employer should provide evidence to HMRC to support the alternative method.
More on how to attribute services between management and investment activities is given at VIT45300.