New pension scheme VAT rules could prove difficult to implement

Employers wishing to claim VAT on costs relating to their defined benefit occupational pension scheme, will need to comply with new rules due to be introduced on 1 January 2016. However, there are significant practical problems to overcome when implementing the new rules.

The new rules require employers to satisfy numerous conditions, before reclaiming VAT on pension scheme management costs. One of the conditions is that the employer must actually receive the services supplied by the manager.  Moore Stephens VAT expert, Robert Facer, explains “this condition has caused a great deal of concern in the industry, as it is usually the trustee who engages with the manager for its services, in order to comply with pension regulations.”

Earlier this year, HMRC attempted to address this issue by confirming that they would accept the use of a tripartite agreement between the manager, the trustee and the employer to demonstrate compliance with this condition. There has, however, been much concern surrounding the implementation of such arrangements. It would appear that HMRC now accept that the use of tripartite agreements may not be a viable solution and they are now reviewing alternatives. Further guidance is expected to be published by HMRC in October 2015 and we will provide a further update following publication. Businesses that are incurring costs in relation to setting up tripartite agreements may wish to put this on hold until the new guidance has been published.

This means that employers and trustees, are faced with uncertainty as to what action to take in order to ensure that they comply with the new rules in time for the 1 January 2016 deadline. “There are other potential solutions,” says Robert “but time is now very short if new arrangements are to be implemented in time.”

There has been some suggestion that HMRC may extend the deadline, to allow businesses more time to prepare for the new rules. If the deadline is to be extended, it is likely that this will also be confirmed in the forthcoming guidance.

For advice on how to apply the new rules, please contact out team.

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