Appointed Representatives of IFA networks may soon be required to pay Value Added Tax on services delivered by their network principles, following a Customs & Excise ruling which suggests network firms are not exempt from payment.
Correspondence between Whitechurch Network and HM Customs & Excise is still at an early stage, however, an interpretation of existing VAT rules by the agency appears to suggest "the Vatman" believes services companies and networks should be treated equally, and could therefore require all network members pay 17.5% VAT for any services the network delivers.
Ian McIver, managing director at the Bristol-based network, says a ruling made by HMC&E - now in the hands of legal experts - seems to contradict existing interpretation of VAT rules.
"Customs and Excise have argued they can loosely connect VAT with service companies," says McIver.
"We really don’t know what has caused this move, it could be that so many networks are changing their status. It is something [Customs & Excise] are looking at and are waiting to hear from their policy unit. But as an industry, we have to work together on this," he adds.
Members of IFA networks are thought to be exempt from the requirement to pay VAT on services delivered by the network, because while the firm is technically delivering a service, it is doing so by taking responsibility for their regulated activities of the AR and the AR cannot operate without the network's authority.
That situation changes and VAT is chargeable in cases - as Simply Biz the service provider does so - where network members are directly regulated as the service company then becomes just that: a service company.
Representatives of networks which have recently repositioned as service companies to its members rather than network principles - such as Bankhall and Sesame - say they would expect their members to have to pay VAT on any work completed for intermediaries, as these firms are delivering a service.
Industry sources suggest it could be here, however, where the edges between service company and networks may have "muddied the waters" and inadvertently have prompted a change in tax policy.
Florence Palmer, spokeswoman for HM Customs & Excise, says the discussion concerning Whitechurch’s position is still ongoing, but follows a ruling questioning why the firm's "services" are exempt from VAT.
"Customs are aware that a ruling has been sent out to a small independent adviser network based on a particular set of circumstances," says Palmer.
"We have not yet had any response from that network either on the specific rulings nor in response to our question of why they have historically treated these supplies as exempt from VAT as we are not aware of a previous policy rulings. Customs would not normally seek to apply tax retrospectively where there is any question of misdirection by Customs," continues Palmer.
Officials at the Association of IFAs say they are aware of the situation and are now examining precise details of the ruling to try and assess the industry position.
However, other network members fear intermediary firms could yet be affected by this policy if it is decided VAT should be imposed on IFA network services.
Given the current lack of clarification on the handling and exemptions of VAT on networks at this time, Customs & Excise is also now seeking feedback from the financial services industry and companies which may also be affected by the ruling.
"Although we see this particular ruling as being specific to the taxpayer involved, we are obviously keen to hear from other parties that feel they may be affected. If it becomes clear that this decision has wider application we will disseminate it to the relevant bodies with guidance on how it should be implemented," says the HMC&E statement.IFAonline
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