Published by Tyron Potts on
For the past four and half years, pension schemes have been waiting for firm guidance from HMRC as to how a Court of Justice of the European Union (CJEU) ruling in the case of the Dutch Company Fiscal Eenheid PPG Holdings BV (PPG) should be applied to the costs they incur.
Historically, many sponsors who have been meeting pension administration expenses directly have been able to reclaim the VAT on those costs as a legitimate business expense. In July 2013, the CJEU ruled that in order to continue this practice, they must establish a ‘’direct and immediate’’ link between the employer and the expense on which VAT is charged. HMRC’s interpretation was that the employer should be a party to the contract, pay for the services directly and be the recipient of those services.
In a series of briefing notes and updates between 2014 and 2017, HMRC has:
Actually, HMRC has not (at the time of writing this blog) issued any further briefings about VAT on DB pension costs. With little fanfare, it has instead updated an online technical manual to reflect its current stance.
Possibly with half an eye on Brexit (when the UK may no longer be bound by certain CJEU rulings), HMRC has now:
Whilst it may be tempting to do nothing, maintaining the status quo may not always result in the optimal VAT recovery. Employers and trustees should therefore engage with advisers to establish how their services are classified and whether additional VAT might be reclaimed by the pension scheme’s sponsor.
Where the scheme is run by an insurance company, trustees could take this opportunity to review whether costs are likely to rise from 2019 as VAT will now be incurred on management costs.
If you have restructured contractual agreements between trustees, sponsors and advisers in order to position for future VAT recovery, you should be aware of possible complications that may arise in relation to additional corporate tax liabilities for example. In such cases, specialist tax advice may be appropriate.
It seems that, after several years (and several blogs – which you can see below) we have come full circle in relation to VAT and many employers will find that the wait-and-see approach has paid off.