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HMRC confirms VAT-exempt advice guidance

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Money Marketing revealed earlier this month revised draft guidance suggesting that if a customer agrees for an adviser to arrange a retail investment product, no VAT will be due, regardless of whether a sale is carried out.

Explanatory notes sent out with the latest draft guidance said that VAT exemption will be determined by a “gateway” entry into the intermediation process rather than the intention to execute a sale.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Discretionary investment management was deemed taxable under the first version of the draft guidance.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.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. So, let me get this straight. I’ve done the fact-find, agreed a fee charging structure, done the research, established and proved identity, source of wealth – in fact, jumped through all the hoops, made the recommendation in the report which could be 20 or more pages, and the client decides that instead of investing he’s going on a world cruise with a Swedish au pair instead – the work is VATable? If we make an application it isn’t? What if we make the application with the cheque to be submitted on acceptance? Is that VATable if the cheque does not arrive?
    The client applies but withdraws under cancellation – that’s not VATable.
    Who wrote this garbage – Lewis Carroll?
    Roll on retirement!

  2. Lewis Carrols imagination had nothing on these guys, how to make a simple task too complex for an ordinary person to understand and interpret seems to be a penchant for all civil servants. “Yes Minister” was nearer to the truth than we imagined

  3. I can see this going down well with the guys in compliance teams who are responsible for monitoring KPIs:

    Q. “So, why have you got so many of your cases going as NTU? ”

    A. “The client didn’t actually want a product, only advice and this was the best way to save him 20% on the fees”

  4. HMRC dealt body blow over VAT appeal costs

    Ruling means HMRC won’t automatically have its legal costs covered by traders if they lose an appeal

    A commercial law firm has won a significant ruling over HM Revenue & Customs (HMRC) which will seriously affect the government’s handling of its Extended Verification VAT backlog.

    An experienced city based commercial law firm Jeffrey Green Russell (JGR) solicitors, acting on behalf of company Atlantic Electronics Limited, celebrated victory earlier this month when Judge Justice Warren, president of the Upper Tier Tribunal of the Tax Chamber, dismissed HMRC’s appeal this month to dissaply Rule 10 of its 2009 Rules and paved the way for a fairer approach to paying for court costs.

    In the past it has taken up to six years for HMRC to conclude its Extended Verification process, denying the traders in question the right to their VAT repayments and preventing them from defending their rights in court.

    Many were put off pursuing their cases because they had to provision for their own costs and also for HMRC’s on top if they lost a case which could run into the hundreds of thousands.

    As a result of this latest ruling any future Tribunal will now have the power to award costs equally to both sides and create a more level playing field for traders caught up in the process.

    The ruling will force the Treasury to tighten its control over the process to avoid future costs spiralling out of control.

    Many of these appeals have been in place since 2006 and a lot of taxpayers have had no money back.

    A source close to the case told CRN: “This is an interesting judgement because many people could not afford to fight their cases , because they could not cover HMRC’s expenses – particularly if the case has lasted many years – so they more often than not didn’t pursue the case further.

    “Now with this ruling, this will minimise the risk to traders when fighting HMRC and not allow HMRC to drag these cases on for years. People can start to put up a fair fight now this law is in place, and hopefully get their money back. There has been millions of pounds withheld over the past six years and now it is time for them to fight back.”

    To read the full judgment go to

  5. Chris Harrington 3rd March 2012 at 5:13 pm

    The rules are actually quite simple. If you follow the correct advisory process with a client and there is an intention or instruction for the process to involve arrangement of a financial product, which invariably the process will, the no VAT will be charged. If there is no intention for a product to be involved (e.g.purely writing a planning report for a client) then VAT is chargeable. I can’t see why you would find it so confusing or why you would feel negatively about it. It is GOOD NEWS that VAT is not going to have to be charged for every piece of work you do.

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