New HMRC Policy Allows Full VAT Recovery on DB Pension Scheme Investment Costs from 2025

HMRC announced a new policy on VAT recovery for DB pension scheme investment services.
Until 18 June 2025, VAT recovery depended on whether services were administration or investment.
Employers could recover VAT on administration services if invoices were in their name.
VAT on investment services could be recovered if the employer contracted directly or through specific arrangements.
From 18 June 2025, investment costs will not need to be apportioned between employers and trustees in certain scenarios.
Employers can recover full VAT on investment costs under new rules.
Recovery of VAT on administration services remains unchanged.
Employers and trustees should review contractual arrangements and seek advice due to potential tax implications.
The policy change affects only DB pension schemes, not DC schemes.

Key policy change to VAT deduction on pension fund investment costs

Policy Change Announcement: On June 18, 2025, HMRC published a Revenue and Customs Brief that relaxes VAT recovery rules for employers incurring VAT on investment costs related to occupational pension schemes, particularly defined benefit arrangements.
Historical Context: Previously, employers faced restrictions on recovering VAT for costs associated with pension scheme investments while being allowed to recover VAT on administration costs, leading to complications in apportioning VAT between investment and administrative services.
Implications for Businesses: This policy shift presents opportunities for affected businesses to enhance VAT recovery on investment costs, potentially reducing their overall tax burden associated with pension scheme management.

Source MHA