UK: Recovering VAT On Pension Scheme Investment Management Services: New HMRC Guidance

Last Updated: 7 February 2014
Article by Peter Steiner and Jonathan Moody

On 3 February 2014, HM Revenue & Customs ("HMRC") published new guidance on the recovery of VAT paid on pensions administration and investment management services provided to pension schemes. The guidance was required as a result of last year's Court of Justice of the European Union ("ECJ") decision in the PPG case.


EU legislation essentially provides that a business should be able to recover VAT paid on services if those services are used for the purposes of the company's economic activities (assuming that the business itself makes supplies which are subject to VAT). If the services are used only partly for the company's economic activities, the company is entitled to recover a proportion of the VAT.

In the UK, prior to publication of the new guidance, under VAT Notice 700/17 HMRC allowed employers to recover VAT paid on pensions administration services provided to their pension schemes, but not VAT paid on investment management services. Pensions administration services include collecting contributions and paying pensions, actuarial and legal advice, and accountancy and audit services. Investment management services include investment advice, professional trustee services, and custodian and brokerage charges. The employer was generally entitled to recover 30% of the VAT on investment management services unless it could provide evidence to HMRC that it should be entitled to recover a higher proportion.

In July 2013, the ECJ held in the PPG case that an employer was entitled to deduct the VAT charged on both the pensions administration and the investment management services provided for the benefit of its pension scheme if there was a direct and immediate link between the services and the employer's economic activities as a whole. The ECJ held that it was for the national court to decide whether there was a direct and immediate link.

Shortly after the judgment, HMRC announced that it would issue guidance setting out its policy on the recovery of VAT paid on fees for services provided for the benefit of pension schemes in the light of PPG.

HMRC guidance

HMRC's guidance has been long-awaited. Unfortunately, the position that it sets out on VAT recovery is by no means clear.

In principle, HMRC accepts (as it has to do) that VAT on costs relating to pensions administration and investment management services can be recoverable by the employer if there is a direct and immediate link between the services received and the employer's economic activities. The historic 70%/30% split between pensions administration and investment management expenses for invoices covering both service types has been scrapped meaning there is, in theory, no upper limit on the level of VAT that employers can recover, but also no 30% lower limit.

However, HMRC will not allow VAT to be recovered by the employer if:

the services are not deemed to have been supplied to the employer (HMRC does not specify when it will deem services to have been supplied to the employer, but states that the question includes, but is not limited to, consideration of whether the employer has commissioned and paid for the services); or

investment management costs alone are incurred. (HMRC does not believe that investment management services have a direct and immediate

In addition, where the services are deemed to have been supplied to the employer and VAT is recoverable by the employer, but the pension scheme bears the cost of the services (whether by way of reimbursement or a set-off against pension contributions), HMRC will require the employer to charge the pension scheme an equivalent amount of VAT in respect of the amounts reimbursed. This VAT is potentially deductible by the pension scheme to the extent that the scheme itself is engaged in taxable business activities. Some pension schemes do engage in taxable business activities (e.g. those owning commercial property), but many of those activities are exempt from VAT, limiting the level of recovery that schemes can expect to make. Schemes would also need to be VAT-registered in order to recover VAT (a corporate trustee can be included as part of an employer's group VAT registration).

The net effect of the guidance is that it is unfortunately now harder to say with any certainty in which circumstances an employer will be able to recover VAT charged on pensions administration and investment management services. VAT Notice 700/17 will be updated to reflect the revised policy and it is to be hoped that this provides some much-needed clarity.

HMRC's revised policy applies with effect from 3 February 2014, but there will be a six month transitional period where, if the pension scheme is invoiced for the services, the 70/30 split will continue to apply.


The ECJ's decision in PPG offered the hope of improved VAT recovery on investment management services, albeit by the employer rather than the pension scheme. It is difficult to predict how HMRC will seek to apply its revised policy to any particular pension scheme and its associated employer without a detailed assessment of the particular circumstances of both scheme and employer, but HMRC seems to be using PPG to make VAT recovery in this area harder, not easier, than before. Following PPG it is for the UK courts, not HMRC, to decide whether there is a "direct and immediate link" between a supply and an employer's economic activities as a whole, and it is likely that HMRC's interpretation will in due course be challenged, so there may be further developments in this area in future.

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Clyde & Co
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Clyde & Co
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions