HM Revenue & Customs has criticised the FSA for defining platforms as providing administration services and sparking fears over VAT liability, as it says that platforms are clearly based on charging for transactions.
In its platform discussion paper in November, the FSA categorised platforms as providing a service based on admin rather than distribution. Ernst &Young raised concerns in February this could mean VAT would be applicable to platform fees and rebates.
At a discussion forum held by the Tax Incentivised Savings Association in London last week, HMRC deductions and financial services team senior policy adviser David Coppins said: “I do not think the FSA has been particularly helpful on this. The FSA had a very bland description of what a wrap platform was and all it talked about was viewing them as providing the administration of securities and a person’s assets.
“That is not the way we ended up seeing what wrap platforms actually do because most of the ones we have seen actually charge for transacting.”
Coppins argued the purpose of some platforms is to make it simpler for the client to manage their portfolios themselves. He added: “If that is the case, then that is a very direct relationship and if all clients that are being charged is the purchase of shares, for example, with the platform taking x as a percentage, then that is clearly a charge for a transaction. You cannot get away from that and we would not want to dress it up as anything else.”
Avalon director Harry Kerr says: “HMRC seems satisfied VAT will not apply to platforms. The FSA does not seem to understand what kind of service platforms provide. This is probably why the cash rebate issue has come up.”
The FSA refused to comment.