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Defined Benefit Pensions: VAT recovery changes

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Defined Benefit Pensions: VAT recovery changes

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HMRC has announced changes to the VAT recovery position of employers who pay Value Added Tax (VAT) on services relating to the administration and management of a defined benefit pension plan.

This represents a major change for the UK VAT treatment of pension fund managers’ costs.

In certain circumstances, employers can recover the costs associated with the setting up and day-to-day management of the pension fund; however the opportunity does not extend to include the recovery of VAT on ‘investment activity costs’.

The prospective changes are likely to represent an additional cost to employers in running their pension funds, as well as an opportunity for employers to consider their current pension arrangements - particularly as most UK pensions operate under a trust.

Of course, the majority of UK pension plans are 'defined contribution' arrangements (rather than 'defined benefit'), so this change is only likely to affect larger employers with historic plans.

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