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HMRC guidance clarifies VAT fee stance

The Association of British Insurers and HM Revenue & Customs have reiterated that VAT is only payable on advice, not on the sale of a product, in new guidance.

The guidance, on the tax treatment of adviser remuneration, states that where the customer wishes to recieve advice only, for example they request a valuation of current pension arrangements to decide if they should make additional contributions, VAT will be due.

This also applies to investment advice.

But where the customer wants their adviser to arrange the purchase of a financial product, this transaction will be exempt from VAT, the guidance says.

The service of arranging life, pensions and investment products and mortgages is exempt from VAT. The note adds that the exemption applies whether the adviser is paid in fees or commission.

If the customer wants advice and buys a product, IFAs have to establish which of the elements of the service predominates.

It states: “Where the advice provided directly results in the customer taking out a financial or insurance product the whole of the service including the advice element is exempt from VAT.”

But where the advice provided outweighs the work done to arrange a contract for example, when a customer receives a general financial health-check but then only purchases a minor product requiring minimal intermediation, the advice would be the predominant service and therefore liable to VAT.



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

  1. The real reason behind RDR – a VAT collecting proposal no less.

    Read this article and don’t get hung up on Michael Johnsons comments.

  2. Nightmare waiting to happen.

  3. Monsieur Reynard 6th August 2010 at 9:56 pm

    Read the ABI/HMRC “Guidance” notes.

    If you think you’re having a hard time with the FSA, just imagine what it’s going to be like with a VAT audit. And remember who is liable if the auditor considers you’ve not recovered VAT you should have done…..

  4. So can someone clarify to me how this relates to regular reviews with clients…will it depend on whether advice is given at that particular review of not. My concern is that most clients who are retired will not be able to claim back the VAT and their fee has just increased by 20%.

  5. Let us hope the revised guidance resolves the issue of a client changing adviser since the new advisory firm did not intermediate the original product.

    Could existing advisers face a big tax bill on ‘mature’ clients taken on in the past? Are the guidelines anti-competitive as the new adviser has to charge VAT where the former did not?

    If a client has cash to invest, the guidance seems to suggest VAT exemption unless the trail vastly exceeds the initial.

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