VIT45500 - Specific issues: pensions provided for the employees of more than one employer

This page of the manual does not apply where employers are members of the same VAT group registration. Group registration is explained in VAT Groups.

Some pension funds provide pension benefits for the employees of several employers. Those employers may have a commercial link or may be entirely separate from each other. Each employer can only treat as input tax that proportion of the VAT incurred on services relating to the scheme as is attributable to their employees unless that employer makes supplies onto the other employers using those services (i.e. as a “paymaster”).

For instance services could be supplied in respect of a pension scheme that is used by entirely separate employers. These might be administration services, investment services, or both. The supplier may contract with one of the employers, or to a business specifically set up for the purpose, and issue a single invoice to them so that they may act as paymaster and treat all the VAT on the services as input tax.

In order to deduct the VAT incurred on these services someone acting as paymaster must recharge each of the employers with their share of the costs plus VAT. The paymaster must issue a VAT invoice to each of the employers. The employers can then treat the tax on those invoices as their input tax.