A review of the way that IFA networks pay VAT could see network services separated for VAT and extra charges passed on to advisers.
Tax experts believe some areas of marketing and promotional services, commission services and IT and compliance services could be viewed as ancillary and separate to the client adviser relationship and therefore subject to VAT.
Customs and Excise officers will have to look case by case at whether network services are being treated as a composite or mixed supply.
Customs has indicated that it is keen to see advisers in networks assume principal status and manage their own income from commission, which could also include management of their own professional indemnity insurance.
Tax experts such as Financial Services Planning Consultancy consultant Graham Miller believe this arrangement could see networks consider shifting to support services provider status, passing on their costs, including VAT bills, to advisers.
He believes there will be a fine line drawn between the marketing and promotional services provided by the network and the material that an IFA uses to target a particular client, the latter being VAT-free.
Banks have successfully challenged rulings made by Customs on their services and lobby groups such as those involved with the motor industry have negotiated special agreements with Customs.
Aifa director general Paul Smee says: “I remain hopeful that any eventual ruling on VAT will reflect the reality of the regulatory position.”