DB plan:
UK VAT system doesn’t allow exemption of DB plan as it doesn’t qualify as a SIF. To qualify as a SIF it must have features of a SIF like UCITS (Raised from public, invested collectively and investing in transferable securities). A DB Plan does not meet these.
HMRC was to/fro on this but confirmed not much change to current rules
Prior to PGG: Admin fees were fully deductible by employer (if invoiced to employer) and investment mgt were not; and for mixed employers were allowed to deduct 30%.
Following PGG case, the employer can fully deduct pension admin and investment costs provided there is direct & immediate link to its taxable services just like any other employment costs.
For deduction, a valid invoice addressed to employer is required. Due to pension regulation, invoices should generally be paid by DB plan. HMRC issued other alternatives to evidence an employer’s entitlement to deduct VAT, with options including the use of tripartite contracts and VAT grouping;
Advice- restructure the agreement to ensure Employer has valid invoices.
If employer gets invoiced and recharges (output VAT due)– fully deductible, and DB can register for VAT.
Where contributions are netted against invoices, HMRC confirms this is not a supply.
DC Plan
Following ATP case, DC now qualifies as a SIF and hence all fund management related costs (admin, invest etc) are exempt. Not legal or other external costs.
If VAT for fund management was charged, consider asking supplier to re-issue invoice