The Personal Finance Society has clarified with HM Revenue & Customs that advice will be VAT-exempt where product recommendations are rejected or no action is needed following a review.
The professional body has published a revised version of its Professional Direction paper on VAT and adviser charging, first issued in September after agreeing the guidance with HMRC. In the initial paper, the PFS set out practical examples of what the VAT position is likely to be based on different scenarios and outcomes.
Examples included where an adviser agrees a fixed fee with a client to recommend a product to meet a shortfall in retirement planning needs, contacts providers for illustrations, and makes a product recommendation. The client pays the fee but takes no further action.
The PFS originally said this is likely to be VAT-able, saying: “Contacting a provider in order to provide information or an illustration is not a VAT-exempt act of intermediation by itself.”
In its latest guidance, the PFS now says where a retail investment product is recommended in a personal report or suitability letter and the client takes no further action, this is likely to be exempt as the adviser has carried out the advice process with a view to arranging a sale.
The latest guidance also confirms that where the client has signed up to a periodic review service, including rebalancing, recommending new investments and top-ups to existing investments, if the adviser recommends no action is required this is likely to be VAT-exempt as the review is an “ancillary part of the exempt supply of intermediation”.
The PFS stresses periodic reviews are exempt on the basis they are “a relatively minor element of the overall supply”, as first revealed by Money Marketing in October.
PFS chief executive Fay Goddard says its VAT discussions with HMRC have been supported by work from consultancy firm Engage Partnership.
Goddard says: “The main thing is at what point is it determined intermediation. We had to explain through the use of model files how much work is done to get to the point of recommendation. HMRC has now accepted that where personal illustrations and personal recommendations are set out in a compliant suitability letter or client report, then irrespective of outcome, intermediation has taken place. The position has been pinned down tightly and we have got to a very sensible outcome.”
HMRC’s final RDR VAT guidance, published last March, set out a six stage advice process beginning at the fact-find and ending with the arrangement of a retail investment product, and where applicable, ongoing reviews. The guidance stated where the adviser follows the staged process with a view to arranging a sale of a retail investment product, advice will be VAT-exempt.
HMRC is currently consulting on two separate guidance documents related to VAT treatment of discretionary investment management services and consultancy charging.