HMRC rethink on VAT liability for advisers

HM Revenue & Customs has changed its stance on VAT under adviser-charging, saying liability will be based on the intention of the service when advice is originally arranged.

Tisa director of policy Malcolm Small says this will render the majority of advice situations exempt from VAT, with the exception of a client report produced with no intention to sell a product or service.

In August 2010, HMRC and the Association of British Insurers published guidance reiterating that VAT is payable on advice but not on product sales. It said if advice leads to a product sale, then the adviser must determine which is the predominant service.

But following a meeting last week with HMRC senior policy adviser David Coppins and representatives from the FSA, the Tax Incentivised Savings Association, Aifa and the Investment Management Association, HMRC has moved away from this position.

An HMRC spokesman says: “The VAT liability of the process is governed by the intention. If the intention of the agreement between the customer and the adviser is to enter a process leading to the arrangement of an exempt transaction, this is VAT-exempt intermediation. If this is not the intention, then the supply would be advice and therefore taxable.”

HMRC is due to publish draft guidance on VAT next month.

Small says: “It is a change from the previous position, which was looking at what the predominant service was. It is looking at the intention at the outset. We think this is going to be a lot clearer and a lot simpler.”

Aifa director general Stephen Gay (pictured) says: “We have been particularly concerned about trail and where advice is provided on trail commission whether or not that would be VAT-able. The tone of the conversation was about what the intention was at the time that arrangement was set up in the first place. This moves things in the right direction.”

IMA head of tax Stephen Lynam says there has been a lot of scaremongering over the VAT issue but that HMRC has said it will not use the retail distribution review as an excuse to take a more aggressive approach in pursuing VAT from advisers.

HMRC says it is working to produce draft guidance on VAT and adviser-charging in late October. This will be followed by industry consultation, with full guidance due to be published by “early 2012”.

Paladin Financial Services managing director Tim Purdon says: “I find this decision reassuring but I am disappointed it was not arrived at sooner as it should have formed part of the initial planning for the RDR.”