It has become a myth in the investment community ' fees charged by intermediaries automatically attr...
It has become a myth in the investment community ' fees charged by intermediaries automatically attract VAT while commission does not. So common is this view that Sandler dedicated space in clearing up this mis-conception in his report.
According to the report, guidance from HM Customs & Excise states as follows: To assess the VAT liability of the adviser's service, he should establish first what the consumer is seeking:
• advice only; or
• execution only; or
• a mixture of both advice and execution (or is not sure).
The method of charging for a service, for example, by fixed fee or hourly rate, makes no difference to whether or not VAT is charged. It is important to establish what is being supplied to the consumer.
Financial advice is taxable. Therefore, where the adviser gives only financial advice to the consumer, VAT will be due. For example, a client might request a valuation of current pension arrangements.
However, the execution of the purchase of many financial services is exempt from VAT, provided that the product is classified as exempt.
In most cases, consumers will approach advisers with the intention of receiving both advice and execution services, and are unsure what product they require. Where that advice directly results in the consumer taking out an exempt product, the whole service is exempt from VAT, the advice being ancillary to an overall execution service. Even if the consumer intended to take out a product listed below but at the last minute changed his mind, the supply may still be exempt, as long as the execution activity was still the predominant part of the service.
Occasionally, the advice given far outweighs the work done to arrange a contract (for example, because a consumer has received a general financial health check, with advice covering a range of financial issues, but then only buys a minor product requiring minimal intermediation). In these circumstances, which would be rare, the execution service is ancillary to the advice, and VAT is due on the whole service. HM Customs & Excise will look carefully at cases where this rule is being misused solely to achieve the best VAT result by misrepresenting the predominant service.
The exemption for execution services depends on what financial or insurance product is eventually taken out. For example, under current policy, exemption applies to the arrangement of mortgages, share investment, loans, credit, bonds, stocks, insurance, pensions provided by insurance companies, and currency. This would clearly include the products of authorised unit trusts, Oeics, investment trust companies and life savings products.
More than half of people over the age of 55 see financial security as a top priority in retirement, yet a third allocate more time to buying a new car, research from Legal & General (L&G) has found.
Rebranded from OMW
Think tank report
Number of benefits
Alongside Barrett, Hopkins, Boston and Thorman on 17 October