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11 September 2018

HMRC clarifies position on VAT recovery on administration costs

HMRC has confirmed to Crowe UK that it is acceptable for administration services to be invoiced to the sponsoring employer of a pension scheme, enabling the employer to reclaim the VAT charged.

In doing so, HMRC referred to its manual on VAT Input Tax (VIT 44700), published in 2016 and last updated in May 2017, which states that the sponsoring employer can:

“treat VAT incurred on the day-to-day administration of the scheme as its input tax even where the trustee is responsible for the general management of the scheme under the trust deed and where the trustee contracts and pays for the services supplied. However, in such circumstances, trustees must arrange for invoices to be made out by the supplier in the name of the employer so that employers hold tax invoices made out in their own name in order for them to be able to deduct VAT.”

The manual confirms that ‘administration services’ include:

  • collecting contributions and paying pensions;
  • advice on reviewing the scheme and implementing changes to it;
  • accountancy and auditing relating to management of the scheme;
  • actuarial valuation of the assets of a fund;
  • general actuarial advice connected with administration of the fund;
  • legal instructions and general legal advice, including drafting trust deeds, insofar as it relates to the management of the scheme.

It appears that there had been some inconsistency in invoicing practice amongst administration service providers, with some providers taking the view that they will not invoice the employer, as it is not a party with whom they have contracted. HMRC’s confirmation is useful in providing clarity on the position.

For further information, please see here.

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