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Customs briefing sets out position on network VAT

Support services providers could face Vat bills on member services but traditional networks will escape the charges, according to a leading tax expert.

After industry pressure, HM Customs and Excise has issued a business briefing to explain how Vat should be applied to IFA networks in the future.

The briefing, which was quietly issued to Aifa by Customs this week, outlines rules for companies that operate using a sub-agency arrangement between a network and appointed representatives.

The rules mean that a network that acts as a principal sub-contracting its functions to ARs who interact directly with the client will not pay Vat on member charges.

But the document warns that a different Vat treatment will apply to any network that deviates from the AR model outlined.

Financial Services Planning Consultancy consultant Graham Miller says this could see support services providers caught in a situation where services they have not paid Vat on until now, become standard-rated.

He welcomes the move from Customs and Excise to reach a compromise with the industry but he does not believe that it goes far enough to clarify the position for businesses that are not traditional networks or clear up the position of mortgage and general insurance groups.

He adds that the guidelines do not make a clear distinction between which fees will be exempt from tax and which will be standard-rated.

Aifa director general Paul Smee says: “I think this is a hit. Customs now have an understanding of how the network model operates that they did not have before.”

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