HMRC has updated VAT Notice 700/17 following its policy change on VAT recovery for funded occupational pension schemes. For many employers, the revised guidance could lead to significantly higher VAT recovery and simplify the treatment of pension scheme costs.
What’s changed?
Historically, employers often had to apportion VAT between pension administration and investment management services, commonly using the 70/30 split where services were invoiced together.
HMRC’s updated guidance removes this approach. Where the employer receives the supply and holds the invoice, VAT on both investment management and administration services may now be recoverable in full, subject to the normal VAT recovery rules.
A practical example
A manufacturing business sponsoring a defined benefit pension scheme incurs annual pension-related fees of £300,000 plus VAT, covering investment management and scheme administration.
Under the previous approach, a significant proportion of the VAT may have been treated as attributable to investment activities and therefore restricted or only partially recoverable.
Under HMRC’s revised guidance, if the employer is the recipient of the services and the invoices are correctly addressed, substantially more of the VAT could potentially be recovered. Depending on the business’s VAT profile, this could generate annual savings of tens of thousands of pounds.
What should businesses do?
Now is the time to review:
- Pension scheme contracts and service agreements
- Who receives and pays supplier invoices
- Current VAT recovery methods
- Whether historic VAT restrictions should be revisited.
How Hazlewoods can help?
If your business sponsors a funded occupational pension scheme, there may be an opportunity to improve VAT recovery and reduce future costs.
Our VAT specialists can review your arrangements, quantify potential savings and identify whether historic VAT recovery opportunities exist.
If you’d like to discuss how these changes could affect your business, please contact our VAT team.
