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Aviva: HMRC VAT ruling could kill off consultancy charging


HM Revenue & Customs’ decision not to exempt consultancy charging from VAT could kill off the charging method, Aviva corporate benefits head of policy John Lawson says.

Consultancy charging rules were introduced by the FSA to allow advisers to take a fee from employees’ pension pots for advice given to their employer.

Earlier today the Revenue published a statement clarifying that any adviser levying a consultancy charge will need to charge the employer VAT.

There are three ways for an adviser to levy a consultancy charge – a percentage of pension contributions, an increased basis point fund charge or a flat fee taken from members’ funds.

Lawson says most advisers who have used consultancy charging so far have adopted one of the first two methods.

He says because both investment performance and contributions vary from month to month, an employer who wants to use these consultancy charging methods would be forced to accept an open-ended VAT liability.

Lawson says: “Contributions and investment performance are variable, so they are unknowns for both the employer and the adviser. Effectively the employer will be signing up to an open-ended VAT liability.

“Because consultancy charges are usually paid on a monthly basis, the adviser would have to continually bill the employer for a variable amount of VAT.

“This really brings the future of consultancy charging into question and could kill it off completely.”

Scottish Life business development manager Fiona Tait says: “It is galling that consultancy charging has been made so difficult so late on. It was the FSA’s idea and providers built their systems to accommodate it.

“At the moment advisers are trying to replicate pre-RDR charging structures, which means a percentage charge. And if you have a percentage charge then clearly the VAT liability is open ended.

“It would be feasible to control those costs by charging a fixed fee and that seems to me the most practical way to do a consultancy charge.”

Consultancy charging has been under pressure since June last year when the FSA announced a consultancy charge is not permitted to reduce the effective value of automatic enrolment contributions to an automatic enrolment scheme below the statutory minimum.

In November, pensions minister Steve Webb launched an urgent review into the charging method and threatened to ban consultancy charging for auto-enrolment.

The DWP is expected to announce the outcome of the review later this month.



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. HMRC, Steve Webb and the new FCA need to get their act together now for another urgent review!!

  2. I think folks you should be getting the message by now, the regulator/government/consumer lobbies don’t want consultancy charging and this is a simple solution to kick it into the long grass

  3. Errr, if it isn’t OK for the employer to face an open-ended VAT bill, how is it OK for employees to face an open ended deduction from their pension?

  4. Have the powers that be forced this on HMRC as back door method of getting rid of consultancy charging?

  5. You could not make this rubbish up! Under Eu directive anything involving product intermediation is EXEMPT that is Europe wide law! Consultancy charging is fundamentally based on the intermediation of a product so it should be exempt.

    I can for see yet another U turn.

  6. I suppose firms can just walk away from the AE process and leaave the various governmental and QUANG agencies to sort out the sorry mess.

    Has anyone for example taken a look at the stuff NEST is providing as guidance for employers? They will need to reinforce their floors if they print it all off!

    Still more complification in the world of pensions, all pulled together [sic] by politicians [tax payer funded pensions] and civil servants [tax payer funded pensions] for the apparent benefit of those not in the public sector. I feel blessed that I pay a lot into pensions but just wish most of it was into my own!

  7. Whilst I am surprised so many IFA’s seem to want to be in this market,I am not surprised that charging an employer a fee isn’t the right option anyway. If they do not like that then let them sort it out themselves with NEST. CHarging members a fee as. % is in my view a cop out by both employer and adviser, and is commission by another name ! It’s time to move on and stop this now,or get out of the business.We know the regulator is useless and the politicians stupid,so stick to dealing with employers who can afford to pay for a good service and leave the rest alone!

  8. Becoming a headcase IFA 19th April 2013 at 8:36 am

    I would back the people who are suggesting all IFAs back out of this area and let HMRC, government and employers sort it out without us. Maybe that will teach them some manners.

  9. Laughable…another RDR system/process still not ready for the 1st Jan 2013…no need for a delay!! Advisors were ready, nothing else was or is! This is not funny however, peoples incomes/lives are being messed up while RDR chaos continues…the mass markets gone via banks, the public loses out as IFA’s find it increasingly difficult to trade…

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