Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Input Tax

HM Revenue & Customs
, see all updates

Specific issues: when trustees of funded pension schemes can claim input tax

A pension fund has no legal status in itself. It is represented by its trustee(s). A fund may make taxable supplies by, for example, opting to tax supplies of property. The trustee(s) of a fund making taxable supplies may be VAT registered.

On what kinds of services can a trustee claim input tax?

If it is VAT registered a trustee can treat as 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 may be restricted.

If you are a trustee, rather than an employer, VAT on supplies connected with the management of a pension scheme is not normally incurred for your business purposes. The management services are for the business purposes of the employer. The exception to this is where the employer has ceased to be in business.

What is the position if the employer ceases to be in business?

An employer might cease trading and therefore cease to be an employer. When this happens the employer no longer has any right to claim input tax on the management of the pension scheme.

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 means not all the tax on the management services can be recovered where the trustees have to restrict recovery of input tax because they make exempt supplies.

What if a third party manages the scheme?

If a third party:

  • provides both management and investment services; and
  • issues only one inclusive invoice

we will accept, by way of a simplification agreed with the sector, that 70% of these services are supplied for the purposes of the trustee’s activities. Any claim that this is not an accurate apportionment will need to be supported by suitable evidence.

Group registrations and pension schemes

Provided it is a corporate body, it may be possible for a trustee to form part of a group registration with the employer. See volume 2 of V1-28 Registration.

What is the result of a corporate trustee being included in a group registration?

When a corporate trustee is included in a VAT group registration any supplies made by the trustee, including dealing in the assets of the fund, are treated as being made by the representative member.

VAT incurred by group members can be deducted by the representative member to the extent that it is attributable to supplies made to persons outside the group which carry the right to deduct input tax. Any non-business and exempt supplies made by the employer or trustee must be taken into account when considering VAT recovery.

If the fund provides pensions for employees of companies outside the VAT group any VAT incurred on management of the scheme for those companies is not seen as being for the purposes of the representative member’s business. It is not therefore treated as input tax.

Tax incurred should be apportioned so that only so much as relates to group members is treated as input tax. Alternatively the representative member may elect to use the paymaster arrangement (VIT45100).

Has a corporate trustee liability for meeting VAT debts of the representative member?

Normally all group members are jointly and severally liable for tax due from the representative member. However, in the case of a corporate trustee this liability does not extend to the assets of any trust. For example a pension fund whose trustee is the corporate trustee is only liable for tax due from the representative member to the extent that the group VAT debt is attributable in whole or in part to the administration of the trust.