On 26 March 2015, HMRC published a further Brief (Revenue & Customs Brief 8 (2015)) on its policy on the VAT treatment of pension scheme costs. This expands on its previous comments on contractual relationships, pursuant to the PPG case.
HMRC's latest Brief is limited to pension fund management services provided in respect of defined benefit schemes and expressly does not include other types of service, such as legal or actuarial services. Further guidance in relation to such services is now expected in the summer of 2015.
In our earlier alert on the related Briefs issued by HMRC in 2014, we gave an overview of the issues and the key changes relating to defined benefit (DB) and defined contribution (DC) schemes. This new Brief provides further comments which employers need to consider.
The Brief is helpful in setting out more detail on the type of contractual relationships that would be needed, in HMRC’s view, to enable VAT recovery for employers meeting costs. It acknowledges that DB schemes are unique, in that services will typically be provided to the trustees, but the employer ultimately bears the financial risks and benefits associated with the performance of the pension scheme, so there are two potential recipients of the services.
The Brief also confirms that a tripartite contract between supplier, trustees and employer will be an acceptable solution for VAT purposes. In doing so, it sets out some minimum requirements for what the relationship between the supplier and employer should be within the context of that tripartite relationship.
The description of tripartite contracts gives us some useful material to be able to take this forward. If a similar approach is adopted when the guidance for other services is published, that is likely to be helpful.
Employers should therefore engage with their advisers and trustees in order to assess the extent to which VAT is recoverable under their current arrangements, and what changes are possible to maximise recovery. For services other than DB fund management services, and for DC schemes, the position on VAT recovery will remain uncertain for some months yet.