Revenue and customs Brief 43(2014) discusses whether VAT can be claimed on administration and investment costs of a defined benefits (final salary) pension scheme. This is HMRC's second attempt to deal with this issue. It set out an initial view in brief 6(2014), but has taken a number of months to listen to the industry to produce a more refined approach. Traditionally, HMRC has accepted that the administration of a pension scheme can be a cost of the employer's business, and VAT can be reclaimed where tax invoices are made out to the employer. It drew the line at investment costs (such as investment advice) as it regarded that as related only to the fund, and not to the employer's business. In light of the CJEU decision in PPG (C-26/12), this was no longer a sustainable distinction. HMRC now accepts that investment costs are potentially costs of the employer business. It therefore accepts that businesses may have underclaimed VAT accordingly. But HMRC will not accept that a business can claim any of the costs, be they administration or investment, if it is merely paying the costs of the pension fund. It requires evidence which shows that there is an actual supply to the employer business. This could prove problematic, since the employer is acting essentially in a fiduciary capacity for the pension fund. There is some concern that this is overlooked or glossed over by HMRC and may present problems later. This is not particularly helped by HMRC's comment that 'a fundamental criterion to be considered is economic reality'.
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