Experts warn that adviser firms could come under scrutiny from HM Revenue & Customs if their post-RDR billing shows a significant increase in VAT-able activity.
Recent guidelines published by the Association of British Insurers and HMRC for determining the liability on adviser remuneration reiterate 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.
But experts warn IFAs may inadvertently highlight where they may have failed to charge VAT in the past.
Legal & General RDR and commercial director Danny Wynn says: “The rules have not changed, so if an adviser begins charging VAT after 2013 where they were not before, it would not be surprising if HMRC asks why that is now the case.”
Aifa says it is working closely with HMRC on this issue and will offer advice to member firms in coming months.
Aifa director Andrew Strange says: “The VAT status of advice is a complex issue. Clearly, with the clarity of service offering as a result of theRDR, comp-anies may well have to consider aspects of their VAT registration based on their new service offerings.”
Last week, the ABI said it would be updating its guidance to remove the implication that payments must be made upfront to be eligible for VAT exemption.
The ABI’s guidance currently says: “To be exempt under a contract for predominantly exempt product arrangement services, payment for all services must be made at the time the contract is entered into.”
It will be changed to read “payment for all services must be agreed at the time the contract is entered into”.