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HMRC stance on VAT could prompt fee overhaul for DFMs

Discretionary managers Whitechurch Securities and Equilibrium Asset Management say they may need to overhaul their fee structure if HM Revenue & Customs revises its stance on VAT on discretionary management services.

Last week, the European Court of Justice recommended all elements of discretionary management services, including dealing fees and commission which are currently exempt, should be subject to VAT.

This could see HMRC reassess its VAT treatment of DFM services.

Whitechurch Securities managing director Gavin Haynes says: “We have to wait until HMRC decides to interpret the ruling in terms of whether they decide to make sweeping changes. We will have to review the structure of our fees and fee levels if VAT is charged on the whole process.”

“We have a custodian charge which is for holding the client assets which is not VAT-able and a management charge which does attract VAT.
“We also have a switch fee of £12.50, which is a flat fee, and this does not currently attract VAT.”

Equilibrium Asset Management offers financial planning and discretionary management and currently charges a bundled fee for the service.
Investment manager Mike Deverell says: “Most of the time, this fee does not incur VAT because usually there is advice and a sale of a product. We may have to unbundle the charges if HMRC charges VAT on the whole process.

“If it turns out that we have to charge VAT on the discretionary management service and another firm is running investments on an advisory basis and is not being charged, it seems a bit unfair.”

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