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VAT is key to Sandler pay plans, says Sofa

Ron Sandler&#39s proposals for the remuneration of IFAs are easier to swallow than those outlined in CP121 as long as the Government sorts out the issue of VAT on fees, claims Sofa.

Entering the fray between the professional and trade bodies on which set of proposals make it easier for advisers to remain independent, Sofa chairman John Porteous said, assuming HM Customs & Excise co-operates on the tax treatment of fees, Sandler&#39s proposals make sense.

Speaking at the CII Sofa post-Sandler conference in London last week, Porteous said Sandler&#39s proposals would still mean at least 10 per cent of advisers leave the sector, increasing to as many as 20 per cent if the VAT issue is not resolved.

Over the last two weeks, Aifa and the LIA have disagreed over whether the FSA&#39s or Sandler&#39s proposals will serve IFAs best. Aifa has said Sandler is very close to its own thinking, with a menu-based approach while the LIA has warned Sandler places too much of a burden on IFAs negotiating a price and a method of payment with their clients, something to which they are not accustomed.

One of the main objections to the FSA&#39s desire to move towards a fee-charging system is commission is not subject to VAT whereas fee based advice is when a product is not sold. However, where there is no product sale, fees are VAT-free.

Sofa suggests Sandler may have got around the VAT issue by including in his remuneration options a no product sale, no fee alternative, which in theory would not be VATable.

Porteous said: “I believe that if it is VAT-exempt, the number of people who could find the new financial advice role palatable would increase significantly.”

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