IFA networks could face crippling tax bills if a ruling forcing small networks to charge members VAT on fees is extended across the financial services industry.
Companies could be facing VAT bills adding up to several thousand pounds and there are fears that the policy change could be applied up to three years retrospectively.
In a letter from HM Customs and Excise, seen by Money Marketing, one network has been told to pay Vat on the charges it levies members.
The ruling would deal a massive blow to IFAs who are already struggling under the weight of huge rises in professional indemnity insurance premiums and regulatory fees.
Industry sources speculate that the VAT move could bankrupt medium and smaller networks and force thousands of small IFAs out of business.
The letter says the Customs and Excise policy unit will investigate ways of extending the change to all networks.
Networks believe this could cost the industry millions. A registered individual earning £40,000£50,000 a year could cost their network more than £100 a month extra in Vat, meaning that a 200-RI network would be facing a bill of £240,000 a year.
The ruling would have a massive impact on big players such as Sesame and the Tenet Group. A network with 6,000 RIs could face costs of £7.2m, with the bill tripling to over £21m if the move is backdated by three years.
Whitechurch Securities chairman Kean Seager says: “If the Vat decision is upheld, it could well be a very large problem for the more expensive networks. Many of their members will be able to move to a lower-cost network and be charged less after Vat is imp- osed than they are currently paying before Vat.”
Customs and Excise spokeswoman Florence Palmer says: “We will disseminate the decision to the sector if we receive evidence or confirmation that the sector as a whole is treating the same supplies in the same manner. However, the question of retrospection will depend on the individual taxpayer's circumstances.”