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

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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Draft guidance in October suggested advice becomes VAT-exempt where the client agrees to go ahead with a product sale.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Under the original draft guidance, ongoing advice such as annual reviews could be liable for VAT but the revised guidance suggests this too would be exempt if the client agreed at the outset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Discretionary investment management was deemed taxable under the draft guidance.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.

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Readers' comments (12)

  • It is only a draft but if it becomes gospel then there is one small ray of sunshine.

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  • Still not in concrete then. What is their problem, we are`nt talking rocket science here surely someone is prepared to make a decision.

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  • From what I can make out the whole VAT exemption hinges on the IFA maintaining a "gateway" to intermediation for the client. So where the IFA passes that intermediation responsibility to a DFM either directly or via a WRAP based service they are closing that "gateway" and therefore they will need to add VAT to their adviser charge.....

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  • "make a decision!" You are joking?

    The only decisions HMRC make relate to how much they can reasonably get away with screwing more money out of hard pressed businesses before they break.

    Look at the abominable situation with regard to the self employed, not only do they have to pay a compulsory stamp, in addition to their income tax, they have a second tier of NI (Class 4 ) on their profits. And what do they get for it ? Nothing, no second state pension, no social security benefits, no support to expand businesses.

    Best idea, to avoid the VAT altogether, reduce business turnover to less than the registration limit so no need to engage with them or levy VAT, make all the staff redundant and just operate as individual one man bands with some network support.

    No gain for HMRC there then.

    The self employed community in all disciplines is the hardest working community, yet we are constantly bombarded with these distressing and quite unnecessary taxes and fees imposed by people who do not contribute to the economy. We are encouraged to innovate, expand, employ people, yet every action by HMGovernment and the FSA is designed to inhibit same.

    This is a wonderful country with a magnificently diverse population, but governed by the feckless gravy train individuals who make up our parliament.

    We can't even sell planes to India, to whom we apparently give £1billion in aid. WHY are we doing that. Why do we allow our government to pay our taxes to other nations to squander and who do not support us.

    The french must be laughing their socks off, stupid english comes to mind as a mindset.

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  • Actually, if you are not VAT registered now then you / your business is the end user who is now "the end of the line" when it comes to VAT liability.
    When you register for VAT you will probably be a partially exempt business, but this does at least mean you can reclaim some of the VAT on your inputs, which you can't as a non-registered firm (which ought all other things being equal bring business overheads down and you may get a VAT refund on first registering depending on the numbers).
    And if you add VAT to your charges it's not business owners who pay it, but clients. But beware, this is still no different to the rules which have been in place for many years - so be careful what you post!!
    P.S. Entirely agree about Class 4 and Employer NICs - not a tax?? Pah!!

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  • Ned @ 9.25

    Absolutely agree with you.

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  • The HMRC give a good indication that financial advice won't attract VAT and the discussion is about......selling planes to India!! Jeeze!

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  • Mr H.Jeego - the only reason the HMRC guidance is not yet 'final' is simply because they need to give the large number of stakeholders and other respondents the chance to make any final comments. That's simply how the process works - its collaborative.
    Mr Whitely - in the scenario you describe, it is still likely that the IFA will have performed the necessary intermediary functions as set out in the guidance (and so the fee will be VAT exempt) even if the actual product transactions are effected via a DFM or platform.

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  • Plenty of uninformed comment here from a lot of folk who have obviously had no experience of VAT. Nothing new there I guess.

    Oh, and Ned. Look up the rules re VAT and AR's of Networks..... if you really want something to get hot under the collar about!

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  • @Dathan Steele - perhaps you could enlighten us inexperienced and uninformed folk and provide some credentials to back up your views? Having attended numerous seminars on the subjext of VAT and adviser charging, the last being organised by the ICAEW FS Faculty I am keen to hear from you - as a VAT expert - just where they are going wrong?

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