Funded pension schemes

By Tolley
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The following Value Added Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Funded pension schemes
  • What is a funded pension scheme?
  • Latest guidance on the VAT treatment of defined benefit pension funds
  • Recovering input tax on pension fund costs (70:30 split)
  • Recovering input tax on pension fund costs (alternative options)
  • VAT treatment of pension fund management services provided by regulated insurance companies
  • VAT treatment of pension fund management costs
  • Consultancy services provided in connection with group pension funds
  • VAT registering a pension fund
  • VAT groups
  • Local authority pension funds
  • Conclusion

This guidance note provides an overview of the VAT treatment of funded pension schemes.

HMRC Notice 700/17 ; VIT44600; De Voil Indirect Tax Service V7.445 (subscription sensitive)
What is a funded pension scheme?

A funded pension scheme is established either as a personal or company scheme to provide retirement pensions. The company and / or the employee pay contributions to be invested in the fund during the employee’s working life. The fund is held with separate trustees who can be individuals or corporate bodies and the pension scheme is normally separate from the employer’s business.

Typical pension schemes

An employer could opt to use one of the following to provide a pension to its employees:

  • an insurance based scheme where the pension benefits are secured by way of an insurance policy
  • a scheme where the employer does not set aside any specific funds to pay the pensions (unfunded schemes)
  • a scheme under which the employer makes provision of the pension payments by creating a segregated reserve fund in its balance sheet
Latest guidance on the VAT treatment of defined benefit pension funds

HMRC has finally published its long awaited guidance on the VAT treatment of costs associated with defined benefit pension schemes. Significantly HMRC has stated that employers with a defined benefit scheme (final salary scheme) are allowed to continue to use the historic concession called the 70:30 split going forward. This concession is explained below, but in summary, enables employers to recover 30% of the VAT incurred. This concession was to be removed with effect from 31 December 2017.

VIT40000

However, it is important to note that other alternative VAT recovery options that were outlined in previous publications issued

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