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HMRC have issued Revenue and Customs Brief (RCB) 8 (2015) to expand on their stance on the deduction of VAT on pension fund management costs.
HMRC have issued Revenue and Customs Brief (RCB) 8 (2015) to expand on their stance on the deduction of VAT on pension fund management costs.
The publication follows RCB 43 (2014), which set out the department’s position following the Court of Justice of the European Union decision in Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12).
The latest guide explains what evidence the Revenue will accept as meeting the requirements covered in the previous brief, so that employers offering defined benefit (DB) pension schemes will be able to obtain a VAT deduction on the costs of fund management services. It focuses on the use of tripartite contracts between the supplier, scheme trustees and employer.
HMRC accept that such contracts can be used to demonstrate that an employer is the recipient of a supply of DB fund management services. An employer may be able to deduct VAT in line with its residual recovery position, where the contract with the service provider shows:
- the service provider makes its supplies to the employer;
- the employer directly pays for the services that are supplied under the contract;
- the service provider will pursue the employer for payment and when the employer is unlikely to pay;
- the employer and trustees are entitled to seek legal redress in the event of breach of contract;
- the service provider will provide fund performance reports to the employer on request; and
- the employer is entitled to terminate the contract.
Trustees must agree that it is the employer that is entitled to deduct VAT – and an employer that recharges the net cost of management services to the pension scheme, the sum is consideration for an onward taxable supply, and VAT is due.
