Regular readers will know that HMRC has been tying itself in knots over whether and to what extent pension schemes should pay VAT on services supplied to the Trustees. HMRC's previous efforts in this area have suggested that complex structures would be required if the current practice of VAT reclaim for administrative services could continue.

Without publicising the fact, HMRC has effectively performed a U-turn in relation to its position regarding VAT on pension scheme services, to a business as usual position.

HMRC has now reverted to its position of accepting that an employer can make a VAT deduction in respect of VAT charged on scheme "administration" services, even where it is the trustees that contract for the services. In order for this to happen, the trustees need to arrange for the service provider's invoice to be addressed to the employer.

In 2014, HMRC had announced, in the wake of the decision of the Court of Justice of the EU in PPG Holdings, that it would no longer allow invoices to be addressed to the employer to enable it to make a VAT deduction if the invoice related to services that had legally been provided to the scheme trustees.

HMRC has also reverted to its position of making a distinction between "administration" and "investment" services. It is only for "administration" costs that HMRC allows the VAT invoice to be addressed to the employer despite the trustees being the persons who contract for the service, though HMRC has also reinstated its discretionary practice of treating invoices as being split 30/70 between administration and investment without requiring a detailed invoice breakdown where the invoice relates to both types of service.

Following HMRC's 2014 announcement, various alternative mechanisms for dealing with pension scheme VAT issues were suggested, including: tripartite contracts between employer, trustee and service provider; the trustee registering for VAT and charging the employer for running the scheme on the employer's behalf; and the corporate trustee becoming part of the employer's VAT group. Such arrangements are still recognised in principle and may still have a role in allowing an employer to make a VAT deduction in respect of investment charges.