HMRC adviser charging guidance is contradictory, warns FSA

The FSA says HM Revenue & Customs’ draft guidance on adviser charging and VAT is contradictory and should be revisited.

Last month, HMRC developed the draft guidance and circulated it to industry stakeholders. It states VAT will not apply where a customer agrees to take out an investment product following adviser recommendations.

It says ongoing advice, such as regular reviews, will be subject to VAT but if the ongoing advice includes portfolio rebalancing, it will be exempt. It also states investment management or portfolio advice services where an adviser suggests particular transactions will be subject to VAT.

During a breakout session on VAT at the Personal Finance Society annual conference in Birmingham last week, advisers questioned the different tax treatment for rebalancing.

Rory Percival, conduct and risk division supervisor for the FSA, who was among the delegates in the session, said: “I would suggest those two expressions are contradictory, because a portfolio advice service is exactly that, buying and selling and rebalancing.

“So we need to go back to HMRC and say these two bits appear to be contradictory, and also ask exactly what it is getting at in saying that investment management is VATable.”

The guidance follows a meeting in September attended by HMRC, the FSA, the Tax Incentivised Savings Association, Aifa and the Investment Management Association, chaired by consultants Engage Partnership.

Percival said: “Certainly, the tone of the meeting was that a normal portfolio advice service, as defined as including rebalancing, would be exempt.”

An HMRC spokeswoman declined to respond to the FSA’s comments but says: “The purpose of this informal consultation is to invite comments on the draft and let HMRC know if there are any areas that are unclear or where respondents think further explanation is required.”

Philip Milton, managing director of Philip J Milton & Company, says: “More work is needed on this guidance, so we have a clear idea of what HMRC is trying to get at.”

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