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VAT and pension schemes
HMRC have clarified the rules relating to recovery of input tax by employers who provide funded pension schemes for their staff and, in particular, sets out the correct application of the rule commonly known as the 30/70 split. The new arrangements will come into effect from 1 October 2005.
Where trustees of a pension fund carry on taxable business activities, they are liable or entitled to register for VAT. As employers establish pension schemes for business purposes, VAT on expenditure relating to administration of the pension scheme is input tax.
The 30/70 split has been in operation for many years and was intended as a facilitation measure in days before the present level of computerisation, when it would have been more difficult to determine separate values for these supplies. However, where separate invoices are issued for management services and for services in respect of fund activities, the 30/70 split has also become a frequently used method of attribution.
Under new arrangements effective from 1 October 2005, third parties providing both investment and administration services who are able to determine the actual values of each must provide separate invoices to trustees and employers showing the actual value of services provided. Where third parties are genuinely unable to determine separate values for investment and administration services, HMRC will continue to accept use of the 30/70 split, but only where the third parties are administering the pension scheme fully or providing the bulk of the administration of the scheme.
In all other cases, employers will have to agree a fair and reasonable apportionment with HMRC.
HMRC will not challenge use of the 30/70 split for invoices received for periods up to and including 30 September 2005. After this date, if HMRC considers that employers have over-recovered input tax, an assessment will be raised to recover this.
Third parties will need to consider carefully the nature and values of the services they provide and, where possible, issue separate invoices showing the actual value of services provided to trustees on investment work and to employers on administering the scheme.
Customs Business Brief 15/2005 dated 9 August 2005
TOGC rules
HMRC are inviting further comments from interested parties on the consultation concerning the transfer of a going concern rules, begun in September 2000. In particular, they invite comments on any new issues that have arisen in the last four years. Comments should be sent by 31 October to Colin Strudwick, Supply of Goods Team, CT & VAT Products and Processes, HM Revenue and Customs, Room 3E/02, 100 Parliament Street, London SW1A 2BQ.
Customs Business Brief 15/2005 dated 9 August 2005
