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HMRC issues final VAT rules for advisers

HM Revenue & Customs has finalised its retail distribution review guidance on VAT liability, which confirms advice will be exempt from VAT where clients are looking for a retail investment product.

Last month, Money Marketing revealed revised draft guidance which made clear that no VAT will be due if a customer agrees for an adviser to arrange a retail investment product, regardless of whether there is a sale.

Notes on the draft guidance said VAT exemption will be determined by a “gateway” entry into the intermediation process rather than the intention to execute a sale.

The final guidance says where the customer seeks the arrangement of a retail investment product and the adviser carries out the advice process, advice will be VAT-exempt.

It lists the six stages of the process as the fact-find, re-searching suitable investment options, providing customer reports, financial healthchecks and forecasts, recommending and arranging products and, where applicable, monitoring the client’s ongoing position.

If there is no evidence of products being arranged or where one or more stages are contracted for under a separate agreement, VAT will be due.

HMRC says VAT liability is not affected by whether a fee is charged up front 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. HMRC says advisers will have to show evidence of the tax treatment of advice.

VAT guidance on discretionary services is being developed pending the verdict of a test case on the matter.

The final guidance will be incorporated into HMRC’s VAT finance and insurance manuals and will be published on its website by the end of April.

Yellowtail Financial Planning managing director Dennis Hall says: “It seems as though if clients approach us saying they need a product, that would make it VAT-exempt but, from our perspective, we never want to enter a meeting with the idea we are going to sell a product. We approach it from a financial planning perspective.”

New HMRC guidance released last week

Services of an adviser: VAT and the retail distribution review

An adviser’s role in the retail investment market will normally involve them entering into arrangements with the customer under which they might:
1. gather information about the customer (fact-find);
2. carry out research to find suitable investment options;
3. provide the customer with reports, financial health-checks, forecasts;
4. recommend specific investment products to the customer, including the prices at which these can be arranged;
5. act between the product provider(s) and the customer with a view to arranging the sale of the Retail Investment Products agreed with the customer;
6. and, where applicable, i.e., where the customer agrees to an ongoing review service, monitor the customer’s ongoing position to ensure that the products continue to meet the requirements of the customer;
Where the customer is seeking the arrangement of a Retail Investment Product and the adviser performs the arrange as outlined at stage 5 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 1-6, which fall within the agreement concluded with the customer, will be VAT exempt.
Where there is no evidence of such product arrangement services or where one or more of the stages are contracted for under a separate agreement, so that the service provided to the customer is that of general advice or recommendation only, any charges to the customer will carry VAT at the standard rate.
The VAT liability depends on what is done by the adviser and it makes no difference whether a fee is levied upfront or over the life of a product (as for example with Regular Contribution products).

The retail distribution review – other services

Ongoing services –
If, after the arrangement of the sale of Retail Investment Products, the customer signs up to ongoing review services, some or all of the process may occur again. The adviser should be able to determine and evidence where they are in the process with the customer. The VAT liability of ongoing services will depend upon the services the customer has agreed the adviser should perform, as outlined above.

The retail distribution review – evidence

Without prejudice to the general VAT evidential requirements, an adviser will need to keep sufficient evidence to support the tax treatment applied to the services supplied. This evidence will need to be specific to the services performed for the customer and demonstrate that the adviser acted between the customer and the product provider with a view to arranging the sale of Retail Investment Products. If an adviser is unable to provide evidence that an exempt supply has taken place, VAT will be due on that supply.

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