As someone who has survived the chore of a quarterly VAT return for over five years, I still recall the pain of being subject to a formal VAT visit. The visit came about after I asked the local VAT office about how a particular purchase from another EU country should be handled. Its advice was incorrect, which triggered a warning to the inspectors and the visit followed swiftly after.
The benefit of this visit was that the inspector allowed us to ask questions and we ended up with a clearer vision of how to operate under a VAT environment where inputs are outputs and vice versa.
The world of VAT is an amazing place and, with the approach taken to the packaged products supplied by IFAs, it is little wonder that most of us think of VAT as some sort of black art. Currently, as long as the intention at outset is to purchase a packaged product, no VAT is due. Where it is due, the ability of the IFA to reclaim the VAT paid is directly proportional to the level of VATable activity of that particular firm.
I realise that to have us all VAT-registered seems a step too far but let us consider a way though this. I believe that we currently get a raw deal when we pay so much in irrecoverable VAT. If VAT were to apply to all supplies from an IFA, some would say this would disadvantage the consumer. However, if this Government was in creative mode, it could introduce ARAS (advice relief at source). The VAT could be levied but cancelled out for individuals by giving them relief at the same rate. As most firms are VAT-registered, they would be unaffected.
The recent news that VAT could apply to networks will create a challenge for the more expensive networks truly to demonstrate the value they claim to deliver. If that was not enough, the question of VAT being due for the previous three years will test the robustness of networks' contracts in the recovery of VAT due. This attack on network margins could be enough for some of them to pack up and go home or for the better IFAs to consider consolidation or co-operation as an alternative to the network option.
Just as providers need to show where they deliver value to the professional adviser, so do all the organisations or firms which depend on the sector for their existence.Personally, I do not believe in the theory that the FSA is out to obliterate the smaller firm and its recent response to liability-dumping is to be commended. Dumping is not socially acceptable these days and recycling is perhaps a more environmentally-friendly term for those firms where due diligence was something they forgot to do or which simply employed incompetents to do it for them.
Although VAT may end up being imposed on us to a greater degree than at present, I consider that any taxation is only fair if it comes with proper representation. Liability recycling is just another tax being imposed by the unelected and the unprofessional. It may be commercially possible but it does not make it ethical for those advisers wanting to be recognised as a profession.
With all these acronyms flying about, perhaps we could have just one more – ROL (recycle our liabilities).
Robert Reid is a director at IFA Syndaxi