Learn how employers and trustees can claim input tax on funded pension scheme expenses.
Yes, pension schemes can be VAT registered. However, the VAT rules applicable to pension schemes are complex and depend on several factors, including the structure of the scheme and the nature of the activities undertaken. This guide will provide an overview of the key VAT considerations for pension schemes.
Who is responsible for VAT in a pension scheme?
Employers
Employers are responsible for VAT on the management of their own employee pension schemes. This includes costs such as:
- Setting up the scheme
- Managing the scheme (e.g., collecting contributions and paying pensions)
- Reviewing the scheme and implementing changes
- Accounting and auditing
- Actuarial valuations
Employers can reclaim the VAT incurred on these costs as input tax.
Trustees
Trustees are responsible for VAT on the investment activities of the pension scheme. This includes costs such as:
- Investment advice
- Brokerage charges
- Rent and service charge collection
- Property purchases, lettings, and disposals
- Trustee services
Trustees cannot reclaim the VAT incurred on these costs as input tax.
Group registrations and pension schemes
If a pension scheme is part of a VAT group registration, the VAT rules are different. The group can reclaim the VAT incurred on the management of the scheme, but only to the extent that the costs relate to the group members.
Attribution of services
In some cases, it may be difficult to determine whether a service is related to the management or investment of a pension scheme. HMRC has published guidance on the attribution of services, which can be found in Section 5 of VAT Notice 700/17.
Insolvent companies
Where a company is being wound up, the VAT on costs incurred in winding up the company’s occupational pension scheme is deductible under the provisions of Section 94 of the VAT Act 1994.
The VAT rules applicable to pension schemes are complex and can be difficult to navigate. It is important to seek professional advice to ensure that you are complying with the relevant regulations.
Frequently Asked Questions
Who is responsible for VAT on pension scheme contributions?
Employers are responsible for VAT on pension scheme contributions. They can reclaim the VAT incurred as input tax.
Can pension schemes reclaim VAT on investment income?
No, pension schemes cannot reclaim VAT on investment income.
What is the VAT treatment of property held by a pension scheme?
The VAT treatment of property held by a pension scheme depends on how the property is used. If the property is used for business purposes, the VAT incurred on the purchase and running costs of the property can be reclaimed as input tax. However, if the property is used for non-business purposes, the VAT incurred cannot be reclaimed.
What is the VAT treatment of services provided to a pension scheme by a third party?
The VAT treatment of services provided to a pension scheme by a third party depends on the nature of the services. If the services are related to the management of the scheme, the VAT incurred can be reclaimed as input tax. However, if the services are related to the investment of the scheme, the VAT incurred cannot be reclaimed.
Additional Resources
Disclaimer
This guide is for informational purposes only and should not be considered as professional advice. It is important to consult with a qualified tax advisor to ensure that you are complying with the relevant VAT regulations.
2 Definition of a funded pension scheme
A funded pension plan is one in which separate trustees hold the contributions made by the employer and employees. These trustees may be individuals or corporate bodies. Typically, the plan operates independently of the employer’s operations.
Funded Pension schemes — an overview
This notice offers employers and trustees guidance on how to claim input tax on funded pension scheme expenditures.