The Personal Finance Society is pushing HM Revenue & Customs to clarify when it would consider that a client review has strayed into discretionary investment advice, which could trigger a VAT charge.
PFS head of technical services Rebecca Prestage says there is a grey area between regular advice reviews, which does not incur VAT, and a discretionary service, which is likely to incur VAT, where firms have discretionary and advice permissions.
HMRC’s final RDR guidance on VAT liability, published in March, says where the customer seeks the arrangement of a retail investment product and the adviser carries out a six-step advice process, advice will be VAT-exempt.
It lists the six stages as a fact-find; researching suitable investment options; providing customer reports; financial healthchecks and forecasts; recommending and arranging products and, where applicable, monitoring the client’s ongoing position.
If ongoing services are agreed with the client after a product sale, firms will continue to be exempt.
It says if there is no evidence of products being arranged or one or more stages are contracted for under a separate agreement, VAT will be due.
HMRC is due to issue guidance on the VAT treatment of discretionary services following the European Court of Justice’s ruling that the entire DFM service is VAT-able in a German test case involving Deutsche Bank last month.
HMRC says it is setting up a working group to consult on the tax treatment of discretionary services. Prestage will represent the PFS on the working group.
An HMRC spokesman says: “The recent ECJ judgment has provided further guidance on the correct VAT treatment of discretionary investment management services and HMRC is reviewing the current UK treatment in light of this.
“Members of HMRC’s finance liaison group will be invited to a meeting in September to discuss the implications of the judgment and any possible changes to the UK VAT treatment going forwards.”
Baronworth Investments and Financials director Colin Jackson says: “VAT rules can be a minefield so we need absolute clarity from HMRC.”