HM Revenue & Customs has developed the final version of its RDR guidance on VAT liability, which confirms the advice process will be exempt from VAT where clients are looking to take out a retail investment product.
Money Marketing revealed earlier this month revised draft guidance suggesting that if a customer agrees for an adviser to arrange a retail investment product, no VAT will be due, regardless of whether a sale is carried out.
Explanatory notes sent out with the latest draft guidance said that VAT exemption will be determined by a “gateway” entry into the intermediation process rather than the intention to execute a sale.
The final guidance reiterates the six stages of the advice process as the fact-find, researching suitable investment options, providing customers with reports, financial healthchecks and forecasts, recommending products, arranging products, and where applicable, monitoring the customer’s position on an ongoing basis.
It says: “Where the customer is seeking the arrangement of a retail investment product and the adviser performs the arrangement as outlined at stage five above, regardless of whether the sale of the product is finally concluded, and is able to evidence that they have done so, the services in stages one to six, which fall within the agreement concluded with the customer will be VAT exempt.”
HMRC says if there no evidence of products being arranged, or where one or more of the stages are contracted for under a separate agreement, VAT will be due.
It notes VAT liability is purely based on what is done by the adviser, irrespective of whether a fee is charged upfront or over the life of a product.
If ongoing services are agreed with the client after a product sale, firms will continue to be exempt.
Advisers will have to evidence the tax treatment of advice.
Discretionary investment management was deemed taxable under the first version of the draft guidance. References to discretionary services have been dropped pending the verdict of a test case on the matter.
HMRC notes the final guidance should be read in the context of HMRC’s VAT finance and VAT insurance manuals. The final guidance will be incorporated into the manuals and will be published on HMRC’s website by the end of April.