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IFP makes plea for consistency on VAT advice charge

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.

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Nick is absolutely right, this must be cleared up with HMRC well in advance of 2013. Is it too much to ask for a simple approach?

    A fee for the advice (+VAT) whereas any implementation fees/commissions avoid VAT. Servicing fees/retainers also attract VAT?

  2. In one breath HMRC quotes the rule book and in another they admit further clarification is needed.

    These people make up complex regulations which they don’t themselves understand or know how to apply. It shouldn’t be down to local tax inspectors to interpret rules – they should be simple enough not to need interpretation.

    Anyway, this is all quite fatuous. The FSA, HMRC and the Treasury are all colluding to soak more tax from people who simply want some guidance on their financial affairs. They need guidance because everything is made so bloody complicated – from pension simplification (what a joke) to unnecessary tinkering with ISA rules, to ‘top-slicing’ and CGT relief limits – it’s a complete mess.

    HMRC want to charge VAT (additional tax) for those people who need help understnding all the other tax rules – you couldn’t make it up!

  3. Monsieur Reynard 15th April 2011 at 9:19 am

    All credit to Nick for trying to obtain some clarity.I strongly believe that this subject will cause the greatest difficulties / consequences of implementing the RDR.

    The potential for a business to be disrupted by a retrospective VAT inspection is very significant. The lack of FSA engagement on the subject is frightening.

    I’ve never met a sympathetic and understanding VAT inspector. Be afraid, be very afraid…..

  4. What is the predominant service? How is it defined? An adviser spend 2 hours doing the advice, the admin staff spend 10 hours sorting out the intermediary bit. In terms of hours intermediary services predominate. In terms of cost to the client the advice element predominates (adviser rates are far higher than secretarial rates). Also what is predominating? Even if we could clarify the above, is predomination 51% or 75% of time or value?
    In the past, many IFAs have failed to account for VAT correctly and have got away with it. Now the chickens have come home to roost. IFAs are starting to smell the roses. It is not the case that HMRC are trying to grab more money but that IFAs have for far too long failed to consider VAT and apply it correctly although that is hardly their fault entirely given the lack of guidance from HMRC.
    This request for clarification is to be welcomed but I fear the answer will leave us no further forward and that IFAs could be at a disadvantage when compared with the big financial institutions.
    Final thought, is simplified advice VATable?

  5. #Bill Wells | 15 Apr 2011 8:57 am

    “They need guidance because everything is made so bloody complicated – from pension simplification (what a joke) to unnecessary tinkering with ISA rules, to ‘top-slicing’ and CGT relief limits ”

    Bill, if it was straight forwards we would all be out of a job!

    There are people thinking that if they do nothing about RDR, it will go away; unfortunately firms are also thinking ‘lets not do anything about VAT until we have to’. If anyone here is of that mind, I would suggest that you have to act now, and even now may be too late.

    I was talking to a VAT Consultant earlier this year who told me that he had recently had a discussion with a firm whose fund management service (advisory, not discretionary) generates £600k per annum in income which he deemed as having been standared rated for some time!! He advised them to register with haste.

    Look at it the other way around… anything that we get paid for that is not intermediation is standard rated. I would advise all firms to consider their business on this basis. Nothing changes in 2013, it has already.

    Do not bury your heads in the sand or wait for more claification as a retrospective demand for unpaid VAT could ruin you.

  6. I don’t think an ordinary IFA should rush into VAT registration as you suggest until the rules are clarified. Vat consultants make their money by putting the frighteners on you. I’ve dealt with the VAT inspectors and they are far more sensible and approachable than the FSA!
    We must get clarification first.

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