IFAs are in disagreement over what exactly is exempt from value added tax (VAT) . . .
MP’s have told HM Revenue and Customs (HMRC) that they must work with the Financial Services Authority (FSA) to set clear guidelines for the VAT position of advice.
The subject of VAT has recently come under scrutiny by the Retail Distribution Review (RDR), who is set to ban independent financial advisors (IFAs) from taking commission from companies when recommending their investment products to clients.
The RDR revealed that financial advisors are confused over what is and isn’t exempt from VAT.
IFAs have expressed their concern that the RDR commission ban will force them to charge clients VAT.
It is thought that the HMRC Value-Added-Tax clarification may lead to many advisors finding innovative ways to avoid doing so.
Currently HMRC rules state that professional advice is subject to VAT and financial services intermediation is exempted from the 20% sales tax.
Jon Lowson, of IFA Research and Reports, said that the ‘anti-RDR brigade’ has been ‘peddling the lie’ that clients will face higher costs when charged VAT.
‘Whether the advisor remuneration is exempt from VAT or not has nothing to do with whether the advisor charges a fee or is paid commission.
‘Commission is exempt because the IFA gives “free” advice and gets paid for arranging the product (intermediation which is exempt).
‘If the same advisor took the same commission, but told the client they were taking payment for ‘advice’ then that would be VATable.’
MPs who made up the RDR review panel, have said that HMRC and the FSA must set clear guidelines for the VAT position of advice:
‘We recommend that HMRC, in conjunction with the FSA if necessary, report to us as soon as possible with clear guidance on when VAT will be payable for financial advice under the RDR, why it has not been payable in the past, along with any expected additional revenues from the change, and whether further reform of VAT rules in the area will be needed.
‘The FSA should report to us on whether this imposition of VAT will have an impact on the provision of advice, and whether an unfair tax advantage between different advice models will result from the move to the RDR.’
Association of British Insurers (ABI) guidelines currently suggest that financial advisors should establish whether advice given or the product sale is the most important service.
HMRC is currently working with the Association of Independent Financial Advisers (AIFA) to prepare clarification in this area.
Anyone undergoing a Value Added Tax investigation by HMRC should have strong and reliable representation from the outset.
To put your mind at rest call us now on 0800 471 4546 to speak to one of our many experienced tax investigators.
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