Clear up VAT or risk retro bill from HMRC
Cofunds has warned that firms must be able to clearly distinguish between their services that incur VAT and those that do not, or run the risk of raising “a red flag” with HM Revenue & Customs.
Last month, HMRC changed its stance on VAT on advice, saying that liability will be based on the intention of the service when advice is originally arranged.
In August 2010, HMRC and the Association of British Insurers published guidance reiterating that VAT is payable on advice but not on product sales.
It said if advice leads to a product sale, then the adviser must determine which is the predominant service.
Cofunds head of proposition Verona Smith said she sees advice firms that cannot explain why only some services are subject to VAT. She said: “I see adviser firms which cannot describe the differences between the services they offer that incur VAT and those that do not. It is like a red flag to HMRC.”
HMRC is due to publish draft guidance on VAT next month.
Institute of Financial Planning chief executive Nick Cann (pictured) said advisers who begin charging VAT on some services must be able to show a change to their offering or run the risk of retrospective VAT charges.
He said: “Advisers need to be very careful about changing the service they are offering, otherwise the VAT man is going to ask why they were not charging VAT previously.”
Despite there still being uncertainty over VAT, Veracity Asset Transformation chief executive John Baxter says advisers will have time to prepare. He says: “I think there is enough time. It is wrong to put your head in the sand and wait until this comes out though. Advisers should be thinking about this now.”