Networks and not their members will be facing liability for Vat bills on member charges, according to a senior tax expert at accountancy firm Deloitte & Touche.
Deloitte & Touche partner Robin Hume says the position could all boil down to the contracts negotiated between networks and their members. He believes the majority will not include any requirement for members to pay Vat.
HM Customs and Excise is examining how and when networks pay tax and has begun ruling in individual cases that commission retained by networks is liable to Vat as it does not relate to financial services but to support services supplied to their appointed representatives.
Hume believes a revised contractual position could be negotiated which would allow Vat exemption for the income of both the network and the AR.
This arrangement would have to be considered very carefully to ensure that the parties were sharing the risks attached to the financial advice given and the amended arrangements were commercial rather than tax-driven.
Hume says: “Challenging this position will require a detailed review of the contractual arrangements among all of the parties to the transaction and may require litigation through the Vat tribunal and courts with no guarantee of success. Clearly, any resultant Vat liability on networks will be an unwelcome and unexpected tax bill which will probably rest with the network as the contracts with the ARs will in most cases be silent about Vat.”
Group 300 chief executive Chris Batten says: “I am surprised that networks have not seen this coming. When we transferred from compliance consultancy to network we were well aware of this. I think that Customs would be well within their rights to backdate this ruling but I believe if the industry worked together we would be able to mitigate this situation.”