HMRC backtracks on VAT for ongoing advice

HMRC 450

HM Revenue & Customs has backtracked on its view that ongoing advice services should be subject to VAT following industry pressure.

Last week, Fundweb’s sister publication Money Marketing highlighed the lack of clarity on VAT being charged on ongoing services, such as annual reviews, based on correspondence from HMRC. It contradicted earlier guidance this year from the Government body and recent guidance from the Personal Finance Society, which had been agreed with HMRC.

Final guidance from HMRC earlier this year suggested if an ongoing service was agreed with the client at the outset, as part of a six-stage advice process, it woud be VAT-exempt. PFS guidance last month then suggested that rebalancing at review stage would be VAT-exempt but the review would be VAT-able if no action was taken.

HMRC then went further in industry correspondence by suggesting the industry had misinterpreted its original guidance and that ongoing advice services are likely to be a taxable portfolio management service.

However, following last week’s article, HMRC has issued a further statement backtracking on these comments and stating that ongoing advice, agreed at outset, could be VAT-exempt. It is understood that HMRC’s VAT RDR team has been reshuffled. An HMRC spokesman says: “The services of an IFA signing up a client to a periodic review service at the time the client buys their exempt financial products will be an ancillary part of the exempt supply of intermediation.

“This is conditional, however, on the periodic review service being a relatively minor element of the overall supply in terms of both what is provided and what is charged for. If it is not, we may see the review service as being the principal supply and not the intermediation.”

HMRC distinguishes VAT-exempt ongoing advice from ongoing charges made for portfolio services, where the entire service is subject to VAT.

PFS chief executive Fay Goddard says: “We presented these arguments back to HMRC and we are delighted they have revised their advice to us accordingly. We will amend our examples to reflect this latest clarification. We are pleased we have reverted to the position at which we first started.”

Aifa senior technical analyst Linda Smith says: “Advisers need to be very clear about the service they are providing so that both the clients and the authorities understand it.”

Institute of Financial Planning chief executive Nick Cann says: “HMRC and regulators generally need to be more helpful and more simplistic with the information they put out to enable firms to get on with serving their clients and meet the requirements. It is not helpful to set out in guidance in language that leaves it open to intepretation.”

Ovation Finance managing director Chris Budd says: “HMRC’s clarification seems to pivot on the difference between review or ongoing services as provided by the IFA, and portfolio review or management services as provided by discretionary fund managers. The first seems likely to be exempt from VAT, while the second is VAT-able.”

Chartered accountancy firm Moore Stephens director of indirect tax services Mark Chesham says: “This is a welcome reversion back to the industry’s original position.”

But Chesham would also like to see more detail on the timescales needed to qualify as an aborted transaction, which the PFS guidance classes as exempt, and a recommendation which is not acted on, which is VAT-able.