HMRC policy shift: VAT on pension investment costs

From 18th June 2025, HMRC made changes to its approach to VAT recovery on pension-related costs.

What’s new?

Employers will now be able to reclaim all VAT on investment costs tied to occupational pension schemes. Previously, these were seen as “dual use” (shared with trustees), limiting recovery.

What about trustees?

If trustees are VAT-registered and charge for managing the fund, they can also reclaim VAT on their costs.

Next steps for employers:

• Review your current VAT recovery process
• Consider updating your Partial Exemption Special Method (PESM)
• Submit early – new PESMs apply from the start of the tax year

HMRC plans to publish full guidance by autumn 2025, but acting now could unlock valuable VAT recovery.

At Verallo, we’re already helping clients navigate what this means for their pension cost structures. If you need advice on how this affects your business, get in touch.