HMRC has updated its policy on VAT recovery for pension fund management services in Revenue & Customs Brief 4 (2025), published on 18 June 2025. This new position could unlock substantial VAT refunds for employers, potentially going back four years.
What’s the Key Change?
Historically, VAT recovery on pension-related services, especially investment management, has been limited and often dependent on complex contractual arrangements, such as tripartite agreements or VAT grouping.
Now, HMRC has simplified its stance:
- Employers can recover VAT on services relating to the management of pension schemes, including investment management, where they are the recipient of those services.
- There is no longer a need for dual-use apportionment between the employer’s business and pension scheme duties.
- Trustees may also be able to recover VAT, subject to normal input tax rules, where they are VAT registered and provide taxable supplies to the employer.
Can You Claim for the Past?
Yes, HMRC confirms that retrospective claims are allowed, in line with the normal 4-year cap. But this is conditional:
- The right fact pattern must be in place.
- Contracts must show the employer is the recipient of the services.
- VAT invoices must be addressed to the employer.
- The services must support the employer’s business, particularly the operation and funding of defined benefit schemes.
For some organisations, this could unlock significant refunds where VAT was previously not recovered or was only partially claimed.
What Employers Should Do Now
To benefit from the new position, employers should:
- Review pension-related service contracts and invoices from the last four years.
- Assess whether the employer was clearly the service recipient (not just the trustee).
- Quantify potential VAT recovery on eligible costs.
- Check partial exemption methods and consider whether revisions are needed in light of a greater VAT recovery entitlement.
- Prepare to evidence the claim, including how the services relate to the employer’s business activities.
Important: Not All Claims Will Qualify
HMRC’s new position simplifies the rules, but it doesn’t automatically create a right to reclaim VAT. If, historically, contracts or invoices were in the name of trustees, a retrospective claim may not be possible. However, if the employer was always the true recipient, and evidence supports that, then there’s a strong basis for a claim.
Looking Ahead
HMRC intends to update its VAT manuals and guidance later in 2025, offering more detail on how the new position should be applied. In the meantime, employers should act quickly to assess any historical entitlement before the 4-year claim window begins to close.
How Xeinadin Can Help
Our Indirect Tax specialists can:
- Review historic pension arrangements and VAT treatment
- Identify opportunities for retrospective VAT recovery
- Support documentation of claims to HMRC
- Advise on forward-looking arrangements to ensure ongoing compliance and recovery
In Summary:
HMRC’s change in policy presents a timely VAT opportunity, but only for those with the right evidence in place. If you’ve incurred significant costs managing a defined benefit pension scheme, now is the time to explore whether you’re owed a refund.
Please get in touch with our Indirect Tax team to assess your eligibility and discuss next steps.
