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HMRC internal manual

VAT Input Tax

Specific issues: attribution of services received in connection with occupational funded pension schemes following CJEU judgment in PPG – Supply of Scheme Administration services by pension trustees to an employer

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 administration and other general pension scheme related services that are used by it in order 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.

However, where the services provided by a trustee incorporate the management of the assets of the trust, any investment costs incurred by the trustees are used both for the trustees’ supplies to the employer and also for the trustees’ ongoing investment activities.  Any VAT incurred on those investment services has a direct and immediate link to both the supply to the employer and to the investment activities.  This means that any deduction of such VAT will need to reflect that dual use and be apportioned between the two activities on a fair and reasonable basis.  

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 how to determine whether this applies in any particular 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.  However, if the fund or funds which the trustees are responsible for are special investment funds (SIFs) and the supply they make to the employer is one which falls within the definition of management of a SIF, this supply will be exempt.  In such a case the trustees will not be able to deduct the VAT on its costs to the extent that it uses those costs to make the supply to the employer.