HMRC have published RCB 14/16 and announced that the transitional period under which businesses could use historic methods to recover VAT incurred on pension scheme costs is being extended. The extension is for an additional 12 months and hence it will now run until 31 December 2017.
HMRC have faced difficulties reconciling the European Court of Justice’s decision in PPG Holdings (C-26/12), which found that the UK’s existing treatment for VAT recovery was illegal. The UK should have been allowing businesses to recover more VAT than was previously the case. However, implementing changes that allow for this extra VAT to be recovered have been difficult to the interaction of pension, VAT and direct tax laws. Until certainty on what to do is delivered by HMRC businesses will be hard pressed to make any changes because of the lack of information and hence will be forced to rely on existing methods of VAT recovery.