HM Revenue & Customs has confirmed advisers should charge employers VAT when levying a consultancy charge.
Consultancy charging rules were introduced by the FSA to allow advisers to take a fee from employees’ pension pots for advice given to their employer.
It had previously been unclear whether a consultancy charge would be exempt from VAT.
HMRC has now clarified that any adviser levying a consultancy charge will need to charge the employer VAT.
It says: “In order to fall within the finance or insurance exemptions, it is necessary for the provider to act as an intermediary (or one of the intermediaries) between the individual employees and the pension provider with a view to the conclusion of an individual pensions contract.
“Based on the typical contractual arrangements reviewed by HMRC and its discussions with the pension consultants industry this does not appear to be the position in respect of the services currently provided by pension consultants in return for ‘consultancy charges’.
“On the contrary, the ‘consultancy charge’ is a fee paid in return for advisory, administration and other services supplied to the employer. The fact that the ‘consultancy charges’ are paid via the pension provider does not alter the VAT analysis. The same VAT analysis also applies to any separate fees charged to employers.
“EBCs and other pensions consultants should therefore account for standard rated VAT on ‘consultancy charges’ and any separate fees charged to employers for these services.”
Aviva corporate benefits head of policy John Lawson says: “The warning to IFAs is that they might have felt consultancy charging looked and felt and smelt like commission, and so were not charging VAT on it.
“HMRC has made it crystal clear that if you aren’t charging VAT on consultancy charging, you should be.”