VAT: Deductibility of pension fund costs

Mar 29, 2021

Tax and Duty Manual VAT & Employees' Pension Fund  provides further clarification on the circumstances where an employer can claim a VAT deduction for costs incurred in relation to an employee pension fund.

Where the regulatory requirements for pension funds require the pension trustees to contract with the service provider directly or enter into a tripartite agreement, although the employer directly pays the service provider, the invoice may be made out in the name of the pension fund trustees. Difficulties arise as the employer does not have a valid VAT invoice for VAT recovery on these costs.

Paragraph 2.1 of the manual now details that in such circumstances, Revenue accepts that the employer may deduct the VAT incurred on costs to set up and manage a pension scheme where the below conditions are met:

  • The costs of the input transaction form part of the employer’s general costs and must be, as such, components of the price of the taxable goods or services it supplies.
  • The employer is responsible for payment of the services that are supplied under the contract and pays the service provider directly. This arrangement should be demonstrated by way of a written agreement between the employer and the pension fund trustees.
  • The employer does not, directly or indirectly, get reimbursed in respect of payment of the costs.
  • The invoice includes the words “for the account of [name of the employer]”.
  • The employer and pension fund trustees must ensure there are clear controls in place to verify that there is an entitlement to recover the input VAT in respect of the costs incurred and a disclaimer by the party not claiming the input credit.

See eBrief No.059/21 for further details.