Would advice be VAT-able in this instance

Jona

Retail client being given advice on a retail investment product, intermediation takes place.

However client's Ltd Co settles the advice fee.

One or two advisers here seem to think that the Co settling the invoice would mean advice fee becomes subject to VAT.  I cannot find anything to say the source of the fee settlement influences the VAT treatment?

Anyone come across this?  Thanks
Jona

arongunningham

I would argue that the reason you can't find the answer is because the bill-payer is irrelevant.

So long as the advice process qualifies for exemption, happy days.

But I wouldn't be able to commit to this in a court of law, so don't quote me on it!

Jona

Thanks @arongunningham - that was my view as well.

benjaminfabi

It's likely to be a taxable benefit in kind and reportable as a P11d though.

arongunningham

Right. What the company are doing paying for an individual's personal financial advice is another matter. Presumably. we're talking about a small company and maybe it's the director/owner who's receiving the advice. 

There is an allowance for a firm to allow their employees to receive advice on pensions. I can't remember the details though.

Jona

@benjaminfabi @arongunningham Thanks guys.  Yes it's a small Ltd Co and client is owner / director.  Taxable as P11D benefit makes sense to me.

benjaminfabi

Very tight definition on that tax break @arongunningham ;

https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21803

Suse1969

I asked our VAT and tax team:

VAT - it’s the intermediation (of a financial product) that creates the VAT exemption and the customer is not important (though I guess in reality the nature of the customer will drive what they are buying).

BIK - If a company is paying a bill that is the responsibility of the employee then the PAYE implications are :

 Employer contracts with the third party provider and pays the liability- benefit in kind and employee will be assessed via tax code or tax return. Company has Class 1A to pay

1. Employer settles bill that is in the name of the employee- Benefit in kind is reported through a P11D but the NI is taxed through payroll.
2. Employee pays the liability and the employer reimburses- amounts paid should be taxed and Nic’d through payroll.

 If the product relates to pension advice then there is no benefit in kind up to £500 if the employer pays or reimburses. This relates to costs incurred after 6 April 2017. 

Susan

benjaminfabi

Thanks Susan that's a great summary.

So if I read it correctly the effective tax rate on the advice fee is at least:

13.8% (class 1a) +
20% (income tax) +
Class 1 NICs (presumably at 12% if an owner/director) 

This might be considerably more than corporation tax and dividend tax to provide the capital to the business owner to pay directly.

Also just be mindful that it isn't a given that pension advice up to £500 is exempt. If the company is funding advice on a scheme that isn't available for the benefit of all employee  for example  it won't qualify .

Suse1969

Yip, it's a great question Jona.