The Association of British Insurers says it will correct its VAT guidance to remove the implication that advice fees must be paid upfront to be eligible for a VAT exemption.
HM Revenue & Customs and the ABI recently issued guidance on the tax treatment of adviser remuneration, which reiterates that VAT is only payable on advice, not on product sales. If the customer wants advice and buys a product, IFAs will have to establish which was the predominant service.
Skandia head of proposition marketing Colin Jelley and others expressed concern over the guidance, as it implied that advice fees can only exempt from VAT if paid for upfront.
The ABI’s guidance currently says: “To be exempt under a contract for predominantly exempt product arrangement services, payment for all services (i.e. both the arranging and ongoing review services) must be made at the time the contract is entered into and the nature of the review services to be provided must be clearly laid out in the contract.”
An ABI spokesman says the guidance will be changed to read “payment for all services must be agreed at the time the contract is entered into”.