HMRC has published a change of policy which could mean VAT savings for many businesses.

Revenue & Customs Brief 4 (2025) announces a significant shift in the VAT treatment of pension fund management services – a change that opens the door to valuable retrospective claims.

What’s changed?

From 18 June 2025, employers can now recover 100% of input VAT incurred on pension fund management services without the need for complex apportionment between employer and trustee. This marks a clear and welcome departure from HMRC’s previously restrictive approach and has the potential to generate substantial VAT savings for many businesses.  

Key highlights of the update:

• Full input tax recovery is now permitted by employers on pension fund asset management fees.
• VAT registered trustees supplying services to the employer may also recover VAT under the usual deduction rules.
• Employers using Partial Exemption Special Methods (PESMs) may need to revisit and resubmit their methods to reflect the updated treatment.
• A four-year backdating window is now available - meaning eligible VAT reclaims could be made back to 2021.
• Further technical guidance from HMRC is expected by Autumn 2025.

What does this mean for employers and trustees?

This change presents a timely opportunity to review VAT recovery practices relating to pension arrangements. Given HMRC’s formal policy shift, and the scope for recovery without apportionment, we anticipate minimal resistance to claims.

Get in touch

If you’d like to understand your eligibility or need support with retrospective claims or PESM reviews, get in touch with our specialist VAT team.