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Questions remain unanswered over charging VAT

HMRC 480

A tax expert has argued there are still unanswered questions on the VAT liability of financial advice which leaves advisers’ interpretation of the rules open to challenge by HM Revenue & Customs.

HMRC confirmed to Money Marketing last week that ongoing advice, agreed at outset, will be viewed as exempt where reviews are a “relatively minor element of the overall supply”.

Chartered accountancy firm Moore Stephens director of indirect tax services Mark Chesham says it is not clear how HMRC will judge this. He says further clarity is needed on whether HMRC is distinguishing between adviser review services and portfolio management by discretionary fund managers, and the difference between VAT-able rejected recommendations and exempt aborted transactions.

Chesham says the current VAT position risks churning, with customers authorising product sales to avoid VAT.

He adds: “It is a wholly avoidable mess and we still have time to achieve a reasonable measure of clarity.”

Personal Finance Society chief executive Fay Goddard agrees the terms around exempt reviews that are a relatively minor element of the overall supply need to be better defined and says there is a need to align the language used by HMRC with equivalent industry terms.

An HMRC spokesman says as a general rule, periodic, usually annual, reviews agreed at the point of sale will be exempt.

On the issue of churning, HMRC says: “VAT is an EU tax, and HMRC is bound to implement it in accordance with the provisions laid out in EU law which provide exemption for the intermediation of financial products but not for general financial advice services.”


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

  1. For goodness sake. There are two months to go before the change to fees and still the FSA and HMR&C haven’t sorted out how we should be documenting our fees.

    Just goes to show that box tickers can’t make simple decisions.

  2. Is this pointing back to 7% initial – otherwise I’ll have to whack another 20% on the trail Guv? 😉
    Before the blue touch paper burns, this is a slightly humourous (if not funny) observation.

  3. If an ongoing fee is included and contracted for in an intermediated product initially, will that ongoing fee still be VAT exempt, regardless of what services are carried out?
    If not, what are the services that can LOSE the VAT exempt status, (because surely it will make sense to contract for those separately to protect the VAT exempt ongoing fee?)
    Finally, what is the impact on existing trail? Presumably any interpretation going forwards will be applied by HMRC to everything, new or existing? Does this mean that trail that is no longer exempt will be deemed to include VAT which we will need to report and pay to HMRC?

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