January 2013 is only a few months away and a lot of uncertainty remains regarding the VAT treatment of financial advisory services. The long awaited formal guidance from HMRC has failed to clarify the VAT position with regard to the definition of ‘advice’. Therefore, there is still a high level of subjectivity and from our experience many financial advisers are unsure how to handle VAT especially for advisory services provided in an intermediary capacity.
Under RDR, the term ‘advice’ covers a broad range of functions including:
– recommendation
– referral and
– intermediation work around product distribution.
The objective of RDR is to move the focus from the current commission-led environment to a fee-based structure where intermediaries (termed ‘advisers’) charge in relation to the work done. This is aimed at removing any ‘hidden’ bias in product recommendations and ensuring that advisers fully disclose the nature of their advice and provide the best service to clients.
Although it may be clear from a RDR perspective that the IFA is providing ‘advice’, the type of advice and the capacity in which the advice is provided, will determine the VAT treatment of the services being performed. Because of this ambiguity it is not surprising that IFAs have been questioning if the VAT treatment historically applied has been correct.
Working with a number of firms of IFAs we have seen examples at both ends of the spectrum. There seems to be little consistency within the industry as far as the VAT treatment is concerned. Some firms are over accounting for VAT by charging VAT on all advisory services, whereas others are potentially at risk of challenge from HMRC having treated all supplies as exempt from VAT. In practice, much will depend on the contractual position and the nature of the services provided.
This is not a satisfactory situation when IFAs have to deal with so many other challenges to comply with the imminent RDR implementation. Mistakes could be costly resulting in either applying the incorrect VAT treatment or creating a VAT risk.
If you would like assistance with this matter please call Martyne Pearson on 01962 735350.
