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.