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MM leader: Consultancy charging takes another hit

The outlook for consultancy charging did not look good before last week’s announcement by HMRC and it looks even less healthy now.

Many advisers had assumed the decision about charging VAT was based on whether the service was purely advice or the intermediation and arrangement of a pension scheme. HMRC disabused them of this notion by stating that “the ‘consultancy charge’ is a fee paid in return for advisory, administration and other services supplied to the employer”.

However, it is not the content of HMRC’s pronouncement which is most astounding but the timing of it.

The level of combined regulatory incompetence over the handling of consultancy charging is staggering. The Department for Work and Pensions, the FSA (now FCA), The Pensions Regulator and HMRC have had as long as financial advisers to get to grips with the RDR but it seems advisers are the only group which has managed to do so.

The pronouncement by TPR and the FSA that consultancy charging must not be applied in a way that reduces employees’ pension contributions below the minimum required by auto-enrolment came very late, just before the start of auto-enrolment. When the DWP joined in and announced an urgent review of consultancy charging a few weeks before the RDR deadline, its timing was robustly criticised.

Now, more than three months in to the new regulatory regime and more than six months after the launch of auto-enrolment, HMRC is the latest authority to undermine the method that advisers operating in the group market have relied on for payment.

The industry is still waiting for the results of the DWP’s review but it is fast becoming irrelevant as it is hard to envisage many employers willing to pick up the whole cost of the provision of advice with a 20 per cent premium.

While HMRC will not concern itself with who will or will not be able to receive advice, the FCA, DWP and TPR should be very concerned that it is becoming increasingly hard for companies and employees to get access to good-quality advice on pensions.

This year is going to be key for auto-enrolment with many providers likely to reach capacity and many employers and employees entering the system for the first time. Whether or not you agree with the concept of consultancy charging, the regulators are running out of time to get a workable system in place to allow advisers to do their jobs.

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. I have a meeting to discus establish a 100 person scheme tomorrow and to expo and a 10 person scheme to 80 in a month and don’t know if I am coming or going. I think I might just back away and leave it…..

  2. VAT is going to be a big issue for all IFA ‘s there is such confusion and lack of clarity in all aspects of fee charging. However if a company was paying fees to an Accountant for services and advice then they would be VATable and they would expect to pay it so I dont see why HMRC would think it would be any different for financial advice. We are kidding ourselves by thinking otherwise and not charging it.

  3. @Anon 1.46pm. I hear you but there is a BIG but and that is the likes of accountants and solicitors services have always been VATable. We are still doing exactly the same job in exactly the same way for exactly the same people. up to now this was zero rated. Now it has just stuck an extra 20% onto the fees. If you are setting up a GPP for 10 or 100 it is irrelevant. It is a grouped PERSONAL personal pension ie for individuals – not the employer. HMRC decision is an absolute disgrace and needs challenged.

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