View more on these topics

FSA warns HMRC adviser charging guidance is contradictory

The FSA says HM Revenue & Customs’ draft guidance on adviser-charging and VAT is contradictory and should be revisited.

Last month, HMRC developed the draft guidance and circulated it to industry stakeholders. It states VAT will not apply where a customer agrees to take out an investment product following adviser recommendations.

It says ongoing advice, such as regular reviews, will be subject to VAT but if the ongoing advice includes portfolio rebalancing, it will be exempt. It also states investment management or portfolio advice services where an adviser suggests particular transactions will be subject to VAT.

During a breakout session on VAT at the Personal Finance Society annual conference in Birmingham last week, advisers questioned the different tax treatment for rebalancing.

FSA conduct and risk division supervisor Rory Percival, who was among the delegates in the session, said: “I would suggest those two expressions are contradictory, because a portfolio advice service is exactly that, buying and selling and rebalancing.

“So we need to go back to HMRC and say these two bits appear to be contradictory, and also ask exactly what it is getting at in saying that investment management is VATable.”

The guidance follows a meeting in September attended by HMRC, the FSA, the Tax Incentivised Savings Association, Aifa and the Investment Management Association, chaired by consultants Engage Partnership.

Percival said: “Certainly, the tone of the meeting was that a normal portfolio advice service, as defined as including rebalancing, would be exempt.”

An HMRC spokeswoman declined to respond to the FSA’s comments but says: “The purpose of this informal consultation is to invite comments on the draft and let HMRC know if there are any areas that are unclear or where respondents think further explanation is required.”

Philip J Milton & Company managing director Philip Milton says: “More work is needed on this guidance, so we have a clear idea of what HMRC is trying to get at.”


News and expert analysis straight to your inbox

Sign up


There are 13 comments at the moment, we would love to hear your opinion too.

  1. “It also states investment management or portfolio advice services where an adviser suggests particular transactions will be subject to VAT.” Suggests probably implies that there is no intention to intermediate. If the client agreement was to make recommendations with a view to implementing them I would suggest that it is not subject to VAT. As we know, we have not yet received final clarification but it does demonstrate how difficult it is for advisers to determine what is VATable when in many cases we are not even sure at the outset whther we will be intermediating until we know our client!

  2. Clearly the September meeting didn’t include any practitioners. Why?
    That will be why teh guidance does not make sense in practice

  3. It makes you want to bang their heads together. If the FSA and HMRC can’t agree on what is and what is not VATable, how the hell are we supposed to know ?

    Why can’t the idiots agree with the morons ?

  4. The idea of the FSA asking for clarity is beyond belief.
    When were they ever clear about anything?

  5. David Cowell, Myddleton Croft 17th November 2011 at 9:32 am

    In answer to Snooks, you will find that The chairman from Engage is also a practitioner IFA.

  6. Can anyone clarify the VAT situation if I make recomendations to invest in a product (i.e. propose he makes a non Vatable transaction)and charge a fee for the recomendation as we would then not get a commision from the provider, post RDR, what would happen if the client decided not to take up the suggestion? would I then have to go back and ask for the the recommendation would then only be advice, which didn’t lead to a transaction?
    Maybe the trick is always suggest that they put something into their Pension or ISA to make the advice transactional?
    the whole thing is a bit of a farce! they should not be after the industry for VAT as we are here to encourage people to save, which in the end reduces the burden on the taxpayer anyway! vat and fees will put the people who need the advice most off asking for it.
    there is a saying, ‘if it ain’t broke, don’t fix it!’.
    a fair cap on commissions accross the board would have been a better solution.

  7. To G Hughes, assuming the situation remains unchanged since we are still awaiting guidance, the question is what was the predominating intention at the outset? In your example it is intermediation and so VAT is not applicable even if the intermediation falls through. Even if a fee is charged. The sad thing is that rules and beaurocrats are causing the VAT tail to wag the advice dog and that is dangerous.

  8. the continued confusion over whether VAT should be charged is a clear indication that the rules are flawed. How can there be uncertainty over whether a tax should be charged? There will be continued iinconsistencies across the industry. The only way to change this is for the Government to confirm that financial advice is not a luxury and is very much a necessity. Make the advice an exempt supply and the product becomes irrelevant.

  9. So is there a difference between rebalancing a portfolio and recommending just one or two selective fund switches without total rebalancing? And is the FSA or HRMC saying that the former will be non-VAT’able but that the latter will be VAT’able?

    It’s a right bugger’s muddle.

  10. Left hand not knowing what right hand is doing.

    Oh aren’t we being lead by some DONKEY’S !!!!!!!

  11. We are currently not VAT registered, does that now mean all firms will need to get registered or only if they expect fees to be over the threshold of £73k when product sales are not made ?? Nothing like having a clear idea…

  12. Its very difficult for HMRC to steer a course here that keeps everyone happy. Firstly, they are constrained by the format of their guidance such that they can only offer generalised advice. Secondly, they have to respect EU legislation on the scope for VAT exemption – they cannot simply ‘rule’ that VAT is due on exempt services, or that exempt services should have VAT added (and by the way, VAT never had anything whatsoever to do with ‘luxuries’). Thirdly, if FSA do indeed have issues they will be fully considered in the process of trying to come up with the best guidance possible within the constraints. Finally, HMRC are doing their level best – and stretching some principles to breaking point – to ensure that IFA services are treated as VAT exempt where appropriate. There is no motive of using RDR as a means to impose VAT. I’d strongly suggest that if people have concerns or questions about whether specific scenarios should be liable to VAT or not, they should address these to HMRC so that due consideration can be given to covering these in the final guidance or indeed at a later point. That’s the best way to ensure the process works.

  13. How can there possibly be any confusion or contradiction? Surely the potential VAT implications of the RDR proposals were thoroughly considered by the FSA as part of the formulation process? Surely Mr Sants can show us the cost/benefit analysis including the VAT aspects? Can’t he?

Leave a comment