The last Budget increased the VAT threshold to £54,000.
1: When does an IFA have to register? Is it when they reach this level of
non-exempt turnover or when they pass a lower figure?
A person must register for VAT when his “taxable” turnover is greater than
£54,000 in any 12-month period. Taxable turnover is defined as
turnover which is liable to VAT (either at the standard or the zero rate)
and does not include any exempt income.
Therefore, if an IFA has income of £53,000 which relates to taxable
activities and £150,000 relating to exempt supplies, registration is
not required. The level of turnover is determined on a 12-month rolling
Registration is not necessarily a bad thing. It requires that VAT is
accounted for on taxable supplies. However, it does allow at least a
proportion of the VAT incurred on costs to be recovered by the IFA.
Dependent on the level of costs incurred by the IFA, this may prove
2: An IFA produces a financial report based on the information given by a
client but no investment/insurance contracts are arranged. Is VAT applied
to the fee charged for the meeting and report?
The VAT Act 1994 exempts both the services of an “insurance intermediary”
and the provision of “intermediary services” in exempt financial
transactions. The service of introducing clients who want to buy or sell
investments/insurance to vendors/purchasers of such products is exempt from
VAT even if the intended transaction falls through. If, however, no
contract is envisaged when the report is provided, VAT will be due on the
fee charged (subject to the IFA being registered).
3: An IFA advises a client and subsequently arranges investment/insurance
contracts based on recommendations made. Remuneration is by fees only and
the invoice itemises the charges for the meeting, report and contract
arrangement. Is VAT applied to the whole amount? In the same scenario, the
client is invoiced for the same amount described only as contract
arrangement. Is VAT applied?
Each different part of a transaction may carry a differing VAT treatment.
Where the engagement letter (if any) and the invoice split the service into
its constituent parts, each part should be analysed to ascertain the
correct VAT treatment. In the above situation, any services provided before
the client has decided to invest/insure are liable to be taxable. Those
provided after a decision has been made may be exempt. Where no split is
made, the VAT liability is likely to follow that of the most prominent
part. If the dominant feature is of “contract arrangement”, no VAT is
liable to be applied.
4: An IFA advises a client and subsequently arranges investment/insurance
contracts based on recommendations made. Remuneration is part commission
and part fee. Is VAT applied to the whole amount received by the IFA
(commission plus fee), the fee element only or not at all?
The VAT liability of a supply does not rely on the source of payment but
on the service provided. The distinction between commission and fee income
is irrelevant. The allocation outlined in the answer to question three must
5: A client approaches an IFA with full details of the
investment/insurance contract that he intends to enter into. The IFA
arranges the contract but no advice is given. Should VAT be applied to the
fee charged for arranging the contract? No – the IFA is acting as
introducer. As such, the fee is exempt.
6: A client is introduced to an IFA by a third party and the IFA pays a
fee for the introduction. Should VAT be applied to the fee paid to the
The exemption from VAT covers the introduction of seekers of
investment/insurance services to those providing the service. The
introduction of such seekers to another introducer is not covered and VAT
should be charged (provided the introducer is VAT-registered).
7: A client is introduced to an IFA by a third party which is involved in
some information gathering and attends meetings with the client and IFA at
which it is established which is the most suitable contract for the
investor. The IFA arranges the contract and pays a fee for the
introduction. Should VAT be applied to the fee paid to the introducer?
In this scenario, it appears the third party is also providing an
intermediary service within the definition of theVAT Act and his fee should
8: If a specialist company, instructed by an IFA, provides a tax
calculation which leads to the IFA arranging a contract for the client
based on the information, does the fee paid to the tax specialist attract
If an IFA is usually remunerated by commission but occasionally charges
fees, the fee income in any one year can be very limited. If the income to
which VAT is applicable remains below the threshold should the IFA add VAT
to invoices where applicable?
9: VAT should only be charged where the service supplier is
VAT-registered. As described earlier, registration is only required where
the supplier's taxable supplies exceed the VAT registration threshold.
Voluntary registration is allowed when taxable income is below the
Once a supplier is regist-ered, VAT must be applied to all taxable supplies.