HMRC has proposed that where advisers arrange transactions for clients their services will continue to be exempt from VAT post-RDR, under draft rules published today.
In draft guidance issued today, HMRC confirmed where clients wish to receive advice-only led services - such as general financial advice, tax planning and financial health checks - the service will be subject to the 20% sales tax.
But where advisers arrange transactions for clients the service will be exempt from VAT, it said. This includes gathering client information, carrying out research, advising customers on the best investment option and arranging product sales.
Advisers will have to provide evidence the customer has agreed to the adviser arranging transactions. This could take the form of letters of engagement or other agreements/contracts which are signed with the customer at outset.
But HMRC said where a client has agreed for the adviser to arrange a VAT exempt transaction and that transaction fails to materialise then charges up to the point in which the transaction was aborted will not induce VAT charges.
The fresh emphasis on ‘intent' marks a move away from the existing principle of establishing which service is predominant - advice or intermediation.
However, where the adviser subsequently continues to provide advice after the aborted transaction under a new contract then VAT will be charged, said HMRC.
Elsewhere HMRC said portfolio advice services offered by advisers, where IFAs suggest particular transactions, will be VATable but any separate charges for the arrangement of the transaction will be exempt.
Confirming an IFAonline report last week, where an adviser charges a fee for introducing a client to a discretionary fund manager to look after a portfolio the fee will be taxable.
The same principles apply to ongoing advice. Where advisers charge separately for advice not involving the arrangement of a transaction the service will be VATable.
But where an adviser's ongoing advice service includes rebalancing of portfolios the service will be exempt.
HMRC said it aims to complete the informal consultation process of the draft rules by 31st December with a view to publishing the final agreed version of the guidance early in the New Year.
Rules surrounding adviser charging and VAT have been a cause of ongoing confusion for advisers recently. Publication of the draft guidance comes amid a lack of clarity as to what constitutes advice and intermediation and what this means for ongoing charges.
In August, Professional Adviser and Fidelity FundsNetwork joined forces to urge advisers to protest against VAT charges post RDR.
Services deemed exempt intermediation with no VAT charge
1. Gather information about the customer;
2. Carry out research to find suitable investment options;
3. Provide the customer with reports, financial health-checks, forecasts;
4. Advise the customer as to the best investment options;
5. Implement the agreed options by arranging transactions in securities or insurance; and in some cases
6. Monitor the customer's ongoing position to ensure that the products continue to meet the requirements of the customer, especially where the customer's circumstances are changing; and
7. Rebalance the customer's product portfolio to ensure that it continues to meet the customer's requirements as circumstances change.
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