Financial advice will be cheaper if clients pay for it up-front rather than over the life of the product because they will not have to pay VAT, according to Skandia.
Last week, HM Revenue & Customs and the Association of British Insurers issued new guidance reiterating that VAT is only payable on advice, not on product sales. If the customer wants advice and buys a product, IFAs will have to establish which was the predominant service.
Skandia head of proposition marketing Colin Jelley says the guidance contradicts a key outcome of the RDR, which is to separate financial advice from product sales.
He says: “The guidance note clearly explains that any such separation of advisory services will render those services subject to VAT.
“A situation where advice fees are only exempt from VAT if they are all paid up-front when a product is purchased flies in the face of how people want to pay for advice.”
Syndaxi Chartered Financial Planners managing director Robert Reid says: “Up-front payments will only be exempt from VAT if the main service is the sale of a product.
“IFAs may struggle to evidence that advice makes up only a small proportion of the total service given.”