There has been a good deal of press coverage about the issue of VAT charges that relate to ‘advice’ and ‘intermediation/arrangement’ services provided by financial advisers. Various opinions have been put forward following the joint guidance issued by the ABI and HMR&C. Some of the opinions – as you would expect – have been quite emotional about the added cost to the consumer of the RDR ‘forcing fee based remuneration’… some emotional views have suggested that this is a new issue (it’s not) and some views have suggested that the decision to charge or not charge VAT can be ‘interpreted’ in a certain way to achieve a preferred outcome!
The key thing is to read the actual guidance note and not just rely on the opinions expressed in journalist chat forums (though they are sometimes interesting to read). Accordingly, we have put the link to the ABI document here – ABI HMRC Guidance to determine the VAT liability of a financial adviser’s remuneration.
In a nutshell, it would seem that if the service is specifically intended to be for advice, then VAT is charged on the cost of the service, whereas if the service is for ‘intermediary services’ – arranging the purchase of a product – then the service does not attract a VAT charge. All pretty clear then [?]… However, if the charge made to the customer is not specifically separated for one or other type of service, then the question is whether it is ‘predominantly’ one or the other, and this ‘predominance’ will determine whether the VAT that will be charged, or not, on the WHOLE AMOUNT. Mmm, this is where ‘interpretation’ could come in! The problem with interpretation is that it is open to interpretation… especially in the eyes of the VAT inspectors’ teams and they will not necessarily be consistent in that interpretation!
So, some advisers may seek to charge a common unspecified fee on the basis that they can apply their view of what the predominant intent was and they may never have an issue. However, some will ‘play it safe’ and separate the services and charge VAT on the advice portion and no advice on the product ‘intermediation/arrangement’ portion.
There are some that will latch onto the potentially discriminatory increased cost bias being linked to an IFA’s ‘predominant service’ being advice, whereas the ‘predominant service’ for tied advisers – especially Bancassurers – may well be ‘product intermediation/arrangement’ (potentially lower cost). I don’t see this as a potential ‘conspiracy theory’ but I am sure some will.
A couple of diagrams extracted from the ABI/HMR&C guidance note are shown below. However, it is important not to rely only on these for your interpretation of how to handle the issues of VAT charging. There are supporting notes and more detailed explanations that has not been extracted. The document is not an onerous read – ten pages – so we would encourage all our readers to look at it to ensure that they understand the issues first hand.
