To VAT or not to VAT (that is the question)

DanAtkinsonUK

We're reviewing where we do/don't charge VAT on initial fees and wanted to see what other people are up to. I'm under the impression that it's different from the old 'intermediation' principle following https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin5700 (and the surrounding pages).

It sounds like the VAT treatment is determined by whether the product is an exempt product or not. If the fee relates to a potential investment in an exempt product then it is VAT exempt. The main exceptions look to be XO or insurance based products.

We are also a DFM which isn't an exempt service and therefore charge VAT on our ongoing. So it sounds like if we are recommending an investment/contribution/transfer that ends up in our service this is therefore VATable - even if we used an exempt product such as a bond to hold the portfolio.

Looking for a bit of a sense check on this and to see what others are doing. Happy if you would prefer to Inbox me, but i'm sure there are others on here dealing with VAT questions vat would appreciate the discussion (sorry, couldn't resist the pun!).

Thanks hugely

Dan :-)

arongunningham

This is how we interpret the rules. We add VAT to our fees:

Advised portfolios - Never

Discretionary Portfolios -Yes, for ISAs and Taxable accounts

• For retail clients only
• For ongoing and initial fees
• Assumes the advice process includes intermediation (check on engagement letter)

Suse1969

We're part of an accountancy practice and my VAT team have given me a rule of thumb - if we're intermediating and there's a retail investment product at the end, it's exempt and no VAT. If we're doing tax advice for example, this is VAT-able as it's a service.

If we're doing both, it comes down to the "time" spent on which part, so we do quite often fee separately for each part. As per @arongunningham, our engagement letter is set up so that there is a possibility that a retail product might be used.

And if we're not sure, we run it past our VAT team.

DanAtkinsonUK

@Suse1969 do you do discretionary investment management? What we are hearing is that that trumps the intermediation principle and seems to push most things into VAT world...

benjaminfabi

@Suse1969

How often are you giving tax advice that isn't supplementary to the advice to invest in a retail investment product (or the servicing of such a product)? Have you got an example?

I'd have thought that any 'pure' tax advice would be handed off to your accountants (except things like using the Marriage Allowance).

Any tax benefits arising from a recommendation to invest in something that is exempt would, in my opinion, not give rise to VAT.

TomLloyd_Read

Hi Dan

In a business very similar to yours we charge VAT on most initial and on-going fees as a result of most of our recommendations pointing our clients in the direction of our in house DFM service. Doesn't matter what wrapper is used to hold the assets, if there is a DFM involved the advice is subject to VAT. Hence why unitising has some appeal...

We do some advisory business with recommendations for RIPs and it isn't quite as straightforward as it sounds. There is a process to follow and as long as this is adhered to then this is VAT exempt. In essence, you have to follow the same process at each review for the fee to remain exempt, unless you have outlined in your initial engagement that you will be doing this. A bit niggly but we have taken the view that we follow the same process each year and therefore the advice remains exempt.

Cheers

Tom

DanAtkinsonUK

Thanks @TomLloyd_Read that's really helpful.

Suse1969

No we don't do much DFM work Dan, but yes that's my understanding too - DFM trumps.

Ben, we work quite a bit on AA/LTA work - we've two universities and a teaching hospital here, so there's a regular stream of advice not related to a product.