New draft HMRC guidance suggests advice process will be VAT-exempt

A revised draft version of HM Revenue & Customs’ RDR guidance on VAT liability suggests the entire advice process will be exempt from VAT for most advisers.

Draft guidance in October suggested advice becomes VAT-exempt where the client agrees to go ahead with a product sale.

But revised guidance sent to industry stakeholders this week, and seen by Money Marketing, says the VAT exemption will be determined by a “gateway” entry into the intermediation process rather than the intention to execute a sale.

If a customer agrees for an adviser to arrange a retail investment product, no VAT will be due, regardless of whether a sale is carried out.

Under the original draft guidance, ongoing advice such as annual reviews could be liable for VAT but the revised guidance suggests this too would be exempt if the client agreed at the outset for these services to be carried out.

HMRC was criticised by the FSA for using contradictory wording in its earlier guidance which said ongoing advice that includes portfolio rebalancing would be VAT-exempt but portfolio advice services would be subject to VAT. References to portfolio advice services have been dropped from the new guidance.

Discretionary investment management was deemed taxable under the draft guidance. References to discretionary services have been dropped in the latest draft as HMRC is drawing up new wording and awaiting the verdict of a test case on the matter. A final version of the guidance is expected later this month.