V16.839 Local authority pension funds—VAT treatment and administrative concession
VAT Information Sheet 6/98, June 1998
This information sheet contains important information for all local authorities who administer pension funds. It supplements the guidance contained in Notice No 749A “Local authorities and similar bodies—VAT status of activities” (Part V8).
1 VAT treatment
1.1 Funded pension schemes
It is usual for an employer to separate a pension fund from their business activities. Where there are separate trustees the VAT treatment is as follows—
Administration of the scheme. The day to day management of a pension scheme is part of an employer's business and any VAT incurred on goods or services is reclaimable by them as input tax subject to the normal rules. If a scheme provides pensions for the employees of other businesses, any VAT incurred has to be apportioned between the respective employers. However, special arrangements allow for one of the participating employers to recover the VAT, provided they undertake to recharge each of the other employers with their share of the costs and VAT thereon. This is commonly called the “paymaster arrangement”.
Investment advice. The making of investments is viewed as a business activity of the trustees. Any VAT incurred on goods or services relating to this activity is therefore proper to the trustees of the fund and is deductible by them, subject to the normal rules. This is so even if there is more than one employer participating in the scheme because the investment activities are carried on by the trustees, not the employers.