Advisers who start charging VAT may open themselves up to scrutiny over their past tax bills, warns Institute of Financial Planning chief executive Nick Cann.
Guidelines published by the Association of British Insurers and HM Revenue & Customs in August state that VAT is payable on advice but not on product sales. In cases where advice is given resulting in a product sale, IFAs have to establish which was the predominant service.
Speaking at an IFP retail distribution review conference last week, Cann said: “The big issue is that the broader IFA sector is likely to have presented itself as providing product sales to the VAT man and as providing a service to their clients.
“The risk is that if you have been operating in one way in the past and all of a sudden you change your model and start charging VAT, the VAT man might ask why you were not doing it all along.”
Cann added that it was important that firms look carefully at their business and their client bank to ensure they were satisfying HMRC as well as the FSA.