VAT recovery on pension fund management costs: HMRC announces significant policy shift
On 18th June, HMRC released Revenue & Customs Brief 4 (2025) announcing a significant change in the way it views the eligibility to VAT recovery on the management of pension funds. This will be of particular relevance to businesses that operate defined benefit (DB) pension schemes for employees.
What has changed?
Historically, HMRC’s policy was to permit VAT recovery only on the administration of the pension schemes, not the management of investments. This policy changed following the CJEU litigation in ‘Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) (PPG), which led HMRC to allow limited VAT recovery wherethe employing business had contracted and paid for the investment services but the dual use between the employer and the pension fund trustees meant that full VAT recovery was not permitted.
However, in a significant shift, HMRC announced that with immediate effect:
“HMRC will no longer view investment costs as being subject to dual use. Instead, all the associated input tax incurred will be seen as the employer’s and deductible by the employer, subject to normal deduction rules.”
What does this mean for employers?
This is a positive and potentially valuable development for employers operating DB schemes. Whilst it is not known at this point, the exact requirements that will be imposed by HMRC to achieve full VAT recovery on these costs, the change:
- Allows the possibility of full VAT recovery on investment management costs going forward
- Additionally, it also raises the possibility of backdated claims for periods up to four years for businesses that have restricted VAT recovery.
Contact a specialist
Azets’ VAT specialists have significant experience in this area and can assist you in implementing the changes to maximise VAT recovery going forward. We can also advise on the potential for historic claims for under-claimed VAT, going back as far as 4 years. If you have any questions, please get in touch with a member of our team below.
