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PFS revises VAT guidance on rejected recommendations

HMRC 450

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.


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

  1. Seems to be a story about nothing. Previous guidence from HMRC stated this was always the case. The client had only to show intent to purchase a plan through the sales process to have VAT exempt status on fees. There was never a “had to buy” caveat to make the fee VAT exempt. This was reconfirmed at a seminar I attended in January. I think the PFS is spouting about the obvious. Still its membership fees well spent for those who still contribute – Bless them

  2. So any many hours, including at the the expense of the public purse have been used up in establishing that the guidance has ALWAYS been exemption “ancillary part of the exempt supply of intermediation”? Nothing has changed. It strikes me that any confusion only existed as a result of not referring to the WHOLE of the existing HMRC material and applying it logically.

    Is this something that arose from HMRC raising questions originally?. I hope so, because if it comes as a result of the pursuit of the PFS and other adviser bodies, they have done so at the risk of spotlighting a good policy and having it changed to make the expense of advice for the public greater. As the saying goes, if the rules are working for you, you should keep your mouth shut.

  3. @Harold’s Ghost
    It is worth noting that PFS only sought this guidance under pressure from many members whose demands for clarity indeed risked exactly what you highlighted: “spotlighting a good policy”.

    The PFS was not happy with the first “guidance” they received during a meeting with HMRC; so they lobbied quite hard behind the scenes to get it re-interpreted. Restoration of the status quo and, to be fair, some additional clarity for those unfamiliar with the statutes was the result.

    This has always been HMRC guidance rather than PFS

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