Last week’s statement from HM Revenue & Customs on whether to charge VAT on ongoing advice is welcome but further clarity is required.
The move, revealed in last week’s Money Marketing, saw the Government department backtrack on previous recent guidance which had suggested ongoing advice should not be seen as VAT-exempt.
HMRC has now reverted back to its original guidance, issued earlier this year, in stating that ongoing advice, agreed at outset as part of the six stage advice process, may not be liable for VAT.
However, questions remain over the wording used and how these rules will be interpreted by local tax inspectors.
HMRC says the ongoing advice is VAT-exempt as long as it is a “relatively minor element of the overall supply in terms of both what is provided and what is charged for”.
Writing in this week’s Money Marketing, tax expert Mark Chesham says a simple cost measurement might not be the best way to apply a test on whether the ongoing advice forms part of a single VAT-exempt supply of advice.
He suggests the purpose of the vast majority of ongoing reviews is to ensure products taken out continue to meet the needs of the client and identify any required changes. Such reviews are therefore linked to the original advice supply and should be seen as VAT-exempt, he says.
However, a strict reading of HMRC’s “relatively minor element of the overall supply” wording could see many advice reviews fall outside the VAT-exempt boundaries.
Chesham goes on to list other clarifications that are needed – such as how an adviser should differentiate between a rejected recommendation (VAT-able) and an aborted transaction (VAT-exempt).
Rather than allowing such uncertainty to continue, HMRC needs to provide the industry with further guidance on these important matters so they are settled now, rather than through the courts at a later date.
Show a little tolerance
The FSA’s Rory Percival has told Money Marketing that getting RDR qualifications by 1 January is a “zero-tolerance policy area”. We hope that sensible and pragmatic regulation will win the day with a bit of lee-way offered to advisers close to the requirements who may just miss the deadline.