The Institute of Financial Planning is pushing for HM Revenue & Customs to provide greater consistency over VAT on financial advice, warning that local HMRC inspectors sometimes interpret the rules differently.
Guidance published by HMRC and the Association of British Insurers last August reiterated that VAT is payable on advice but not on product sales, with IFAs having to establish which was the predominant service.
IFP chief executive Nick Cann says he is trying to secure a meeting with HMRC to ensure the rules are interpreted consistently by HMRC and advisers.
He says: “The issue is that local HMRC inspectors are subject to their own interpretation of the rules and will look at an IFA’s business and determine whether they should or should not be charging VAT for their service.
“The trouble is that advisers will all tend to position their service differently. Advisers tell their clients they are offering a service but tell HMRC they are providing an intermediated service involving products and therefore are not charging VAT.”
Cann says advisers that start charging VAT will need to dem- onstrate that their business has changed to justify the charge or may face a retrospective VAT bill if HMRC decides that the company should have been charging VAT previously.
He adds: “The IFP is looking to see if it can speak with HMRC to see what might be achieved for the profession and to ensure a more consistent approach by HMRC.”
An HMRC spokesman says: “The VAT treatment of financial adviser charges will always depend on the nature of the actual work carried out, that is, whether the service being provided is VAT-exempt intermediation or taxable advice.
“This is applied by HMRC in accordance with the rules laid out in EU VAT law. Where a business feels that an HMRC officer has not applied the liability correctly, they can request a reconsider- ation of the officer’s decision.”
In a letter to the financial services industry dated March 23, HMRC admitted that VAT guidance is one of the areas that needs further clarity to help firms make the move to the RDR.