Outsourced Paraplanners & VAT

Sam

Hi all!

The Powwow yesterday was brilliant and it was really great to meet so many new people!

After listening to the interesting lunch-time chat with Richard/Ben/Aleks/Nathan on outsourced paraplanning, I thought of a question later on (as you do!).

I think I know the answer but wanted to be sure - are outsourced paraplanning fees liable to VAT (above the threshold) or are they exempt like adviser fees?

Many thanks in advance!

Sam

arongunningham

I don't know the answer for certain - but I would assume you would have to charge VAT. You, individually, don't have the engagement with the client to benefit from the exemption.

richallum

There is 1 firm that believes paraplanning is exempt. I'm pretty sure every other firm I know believes it's a VATable service. I've taken professional advice on this more than once over the years. We have always charged VAT and still do.

richallum

BTW, thanks for coming yesterday @Sam

Sam

Thanks Richard and Aron!

That's what I suspected! Do you find firms have an issue with paying VAT for outsourced paraplanning, given they don't charge it themselves? Or are they usually quite comfortable with it?

richallum

@Sam They'd all rather not pay it and I'd rather not charge it but never had a problem. The law says we're tax collectors and that's that. Some firms do charge VAT for non intermediated services.

arongunningham

I would think the cost to the IFA for outsourcing paraplanning plus VAT is still lower than the cost and aggro of having an internal Paraplanner?

benjaminfabi

My view is that the vat status of the outsourced paraplanning supply is linked to the exempt status of the end service.

For example, a suitability report for a pension switch is exempt as it forms, in its entirety, a part of the exempt supply of providing intermediation.

However, a report into the options a client has regarding taking their DB pension income (such as with or without pcls, PIE etc) would be chargeable.

I think it's too simple to either charge vat on everything or nothing. But as I'm currently below the threshold it's not something I have worried about yet.

richallum

@benjaminfabi playing devil's advocate on that argument, does that mean that software support, electricity, office space, compliance support etc that went into that pension switch report - all services needed to produce it - should be exempt from VAT too as they all played a part in providing a service that the end adviser is exempt from VAT on? What makes outsourced paraplanners any different from the suppliers of any of those other services?

benjaminfabi

https://www.gov.uk/government/publications/vat-notice-70149-finance/vat-notice-70149-finance

"You must determine the exact nature of your supply. For it to be exempt, it must, when viewed broadly, form a distinct whole, fulfilling the essential functions of a supply described within the finance exemption set out in the VAT Act, Schedule 9, Group 5"

If I am given a factfind and asked to review it, research suitable regulated solutions and prepare a recommendation report, my argument is that it meets the test above and is therefore exempt.

If I'm asked to do a standalone bond calculation, so an adviser knows what the tax position of the client would be, and this doesn't happen as part of the above, it's not exempt. Even if the adviser is using that knowledge to perform an exempt supply, that little bit I've done isn't enough to meet the test.

If a client engages me to do their mifid ii annual disclosures that form part of their exempt annual regulated advice service, and I'm doing all of it, from data gathering to report production, this meets the test.

benjaminfabi

At least one big paraplanning firm doesn't charge any vat. At least one big paraplanning firm charges vat on everything.

They can't both be right.

It's possible that both are wrong.

Andy_Schleider

I took the decision to charge VAT from day one, as a kind of 'future proofing', so that there wouldn't be a perceived 20% hike in my costs when I breach the threshold.

I don't see myself as exempt as I am not personally intermediating; it's the adviser's name and business at the end of the suitability report who is responsible for that.

I have had one adviser repeatedly question about whether my services are VATable, and I'm quite comfortable with my position on this. I'm happily in the position that I am pretty much at capacity so if they don't like it there are plenty more paraplanners who don't charge VAT...

That said, they signed my ToB and want to proceed. Maybe they were trying it on

richallum

701/49 is a good read. The interpretation of "whole" is where the issue really is. Every time I've sought professional advice on this it's been that we're not exempt. Would be very happy to be proved wrong on that. It's up for us to review again with our advisers again next year.

Would be very interested to know if there are any firms out there doing it the way @benjaminfabi described with part exempt and part not and how they go about managing that from a practical point of view.

Andy_Schleider

Me too. I'm trying to get my head around retainers; not sure I've got the time (or the inclination) to add another layer of complexity!

Oldhandnewhand

@Sam said:
Hi all!

The Powwow yesterday was brilliant and it was really great to meet so many new people!

After listening to the interesting lunch-time chat with Richard/Ben/Aleks/Nathan on outsourced paraplanning, I thought of a question later on (as you do!).

I think I know the answer but wanted to be sure - are outsourced paraplanning fees liable to VAT (above the threshold) or are they exempt like adviser fees?

Many thanks in advance!

Sam

" or are they exempt like adviser fees"

Well they are not, not of neccessity, it depends on the nature of the work being undertaken for the client. Essentially VAT exemtion only applies where the "advice" process is designed to bring client and product (and not all products) provider together, i.e. in the role of intermediary, clearly not the case in paraplanning.

This may not be the latest version but I grabbed this for you:
[https://thepfs.org/media/3903332/professional_direction_vat_and_adviser_charging_no_5.pdf]

It can, if properly accounted get horribly complicated particulalry where an adviser makes both chargeable and exempt supplies, you get into the realm of "partial exemption" where you may be able to register for VAT in the first place (a straight life assurance salesman couldn't) and then have to apportion costs accordingly. I did that for our residential property portfolio using a car parking ruse.

ScottPLUS

Appreciate this is an old post but for those that are interested. We had a VAT inspection and asked HMRC specifically this question, as I was aware of some confusion. The answer was that categorically yes, that VAT should be charged. I feel sorry for the large business that isn't charging when the VAT inspector comes calling!

richallum

Thanks Scott. Are you a separate paraplanning firm supplying to the big firm who I'm not sure if I should mention without your permission?!

ScottPLUS

Hi Richard, I'm one of the directors and co-founders of PLUS Group. As you can imagine I was hoping they would say we didn't need to charge VAT as it can be a bugbear!

richallum

Thanks @ScottPLUS