HMRC has issued VAT Notice 700/17: funded Pension schemes. It provides guidance for employers and trustees on claiming input tax on funded pension scheme expenditure.
The notice is effective now and replaces the November 2011 edition of the notice. The notice has been updated in paragraph 2.9 to include guidance on the recovery of VAT on management costs by professional trustees appointed to run a pension scheme.
The paragraph states:
“If you cease trading, and therefore cease to be an employer, you no longer have any entitlement to input tax on management of the pension scheme.
Where, however, the trustees are themselves VAT registered on account of business activities carried out by the pension scheme they may treat the tax incurred on services connected with the continuing management of the scheme as their input tax, subject to the normal rules.
This means that where the trustees are required to restrict recovery of input tax because they make exempt supplies not all the tax on the management services may be recovered (see paragraph 1.5).
Where a professional trustee is appointed to run a pension scheme, eg where the sponsoring employer ceases to exist. VAT incurred on the management of the pension fund can only be recovered by the trustee insofar as it is a clear cost component of an onward supply of that management of the pension fund.”