HM Revenue and Customs Brief 09/13
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Issued 17 April 2013
VAT: Corporate pensions - FSA's Retail Distribution Review -
treatment of 'consultancy charges' for services supplied to employers
Purpose of this Brief
This Brief confirms the VAT implications of regulatory changes
that will affect the way that Employee Benefit Consultants ('EBCs') and
others providing services to employers for the setting up and
administration of work place contract-based pensions will be
remunerated in the future.
Services supplied to employers or Trustees in respect of
occupational pension schemes held through trusts are not covered by
Who needs to read this?
- Businesses (such as EBCs) that advise and assist employers
and/or employees in connection with contract-based Group Personal
- Employers that receive these services.
Action to take
Businesses supplying the above services need to establish the
following to determine the VAT treatment:
- what is the precise nature of the service supplied, and
- who is the recipient of that service?
Businesses that advise and assist employers in relation to
the setting up and/or ongoing administration of Group Personal Pensions
should charge standard rated VAT to employers on services provided to
them in return for 'consultancy charges' or other fees.
Employers should be aware that they will normally be able to
recover the VAT that is charged to them on these services as input tax,
subject to partial exemption and input tax rules (further information
in paragraph 1.4 below).
The VAT treatment of services provided to employees will
depend upon the nature of the services provided (further guidance can
be found in the VATFIN and VATINS guidance manuals). Services to
employees, even if paid for by the employer, will not generally attract
input tax recovery.
Employers may seek advice and assistance from EBCs and other
pension consultants on the setting up of and/or ongoing administration
of workplace personal pensions. This market includes group personal
pensions, group stakeholder pensions and group self-invested personal
pensions – collectively referred to as GPP schemes.
Although some pension consultants have charged employers for
such services (including advice and services provided to the employer’s
staff) in the past, it appears to have been more common for them to
make no charge for these services, but to rely instead on commission
paid by the pension provider.
As a result of the Financial Services Authority's (FSA's)
Retail Distribution Review ('RDR'), EBCs and other pensions consultants
have been banned from receiving commission based remuneration with
effect from 1st January 2013 (subject to exceptions under transitional
arrangements for clients engaged before this date). These businesses
are now required to agree 'consultancy charges' with the employer
instead, which may in some cases be supplemented by separate fees
charged directly to the employer.
1.2 Analysis of VAT liability
In order to fall within the finance or insurance exemptions,
it is necessary for the provider to act as an intermediary (or one of
the intermediaries) between the individual employees and the pension
provider with a view to the conclusion of an individual pensions
Based on the typical contractual arrangements reviewed by
HMRC and its discussions with the pension consultants industry this
does not appear to be the position in respect of the services currently
provided by pension consultants in return for ‘consultancy charges’. On
the contrary, the 'consultancy charge' is a fee paid in return for
advisory, administration and other services supplied to the employer.
The fact that the (net of VAT) 'consultancy charges' are paid via the
pension provider does not alter the VAT analysis. The same VAT analysis
also applies to any separate fees charged to employers.
EBCs and other pensions consultants should therefore account
for standard rated VAT on 'consultancy charges' and any separate fees
charged to employers for these services.
We understand the future use of consultancy charging is still
under review and the position could change going forwards. If,
therefore, the nature of the services remunerated by consultancy
charges changes in future and it can be demonstrated those services
meet the conditions for VAT exemption outlined above, any charges made
for the provision of those services will be VAT exempt.
1.3 Invoicing arrangements
Consultancy charges are consideration for supplies of services
by the pension consultant to the employer in respect of which the
employer is liable to pay any VAT due. The pensions consultant is
therefore required to provide a VAT invoice to the employer for taxable
services provided to them that are remunerated by way of 'consultancy
charges'. This is the case even though, in practice, the consultant
will not receive the net charges from the employer but from the pension
provider, who will deduct the charges from contributions and/or
members' funds and remit them to the consultant.
1.4 Employers' entitlement to recover input tax
The VAT incurred on consultancy charges and other fees charged
by EBCs and other pensions consultants in connection with the setting
up and administration of corporate pension schemes will be recoverable
as input tax by VAT registered employers that incur the costs in the
course or furtherance of their business, subject to any necessary input
If an employer makes exempt supplies, the amount of input tax
that can be deducted may be restricted as, normally, input tax can only
be deducted if it relates to taxable supplies. Further information on
this is in Notice 706 Partial exemption.
About the Author
© Crown Copyright 2013.
A licence is needed to reproduce this article and has been republished
for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2013-04-19 09:03:10 in Tax Articles