I have heard @arongunningham 's view a couple of times from other people. I have responsibility for this in my firm so am familiar with all the relevant sections in the VAT manual, and have met with VAT experts to discuss the subject (honestly, I did not choose to do this!). Intention, for want of a better word, does not feature anywhere that I have seen in the manual.
All advice starts as being subject to VAT. It is only where intermediation takes place that it becomes VAT exempt because there is an introduction to a VAT exempt product. So therefore, in this case because no intermediation has taken place, VAT applies.
@TomLloyd_Read said:
It is only where intermediation takes place that it becomes VAT exempt because there is an introduction to a VAT exempt product.
I think this is incorrect. It's also factually wrong since a SIPP isn't a VAT exempt product, for example.
No offence intended, it would be nice to get to the bottom of it. We have an added issue in that we make use of DFMs which is a whole other can of VAT worms!
HMRC have detailed a 6 stage process that an adviser would normally follow when entering into
arrangements with customers.1
gather information about the customer (fact-find)
carry out research to find suitable investment options
provide the customer with reports, financial health-checks, forecasts
recommend specific investment products to the customer, including the prices at which these
can be arranged
act between the product provider(s) and the customer with a view to arranging the sale of the
Retail Investment Products agreed with the customer
and, where applicable, i.e. where the customer agrees to an ongoing review service, monitor
the customer’s ongoing position to ensure that the products continue to meet the requirements
of the customer
Where the customer is seeking the arrangement of a Retail Investment Product and the adviser performs
the arrangements as outlined at stage 5 above, (regardless of whether the sale of the product is finally
concluded): and is able to evidence that they have done so; the services in stage 1-6, which fall within
the agreement concluded with the customer, will be VAT exempt.
Where there is no evidence of such product arrangement services or where one or more of the stages
are contracted for under a separate agreement, so that the service provided to the customer is that of
general advice or recommendation only, any charges to the customer will carry VAT at the standard rate.
The VAT liability depends on what is done by the adviser and it makes no difference whether a fee is
levied up front or over the life of a product, for example with regular contribution products.
But those are steps you intend to carry out for the client as part of your initial engagement, hence it says regardless of whether the sale of the product is finally concluded.
It also says:
"In order to qualify for exempt intermediation, an adviser would need to clearly evidence to HMRC that
there has been customer specific interaction between the adviser and the product provider in relation
to the sale of exempt products. Providing a customer with product provider material or information on
products is not sufficient to demonstrate intermediation has taken place.
HMRC have stated that a firm would need to evidence that the customer intended to purchase a
retail investment product, following on from recommendations made by the adviser."
"specific interaction between the adviser and the product provider in relation
to the sale of exempt products" - does not occur
"a firm would need to evidence that the customer intended to purchase a
retail investment product, following on from recommendations" - again does not occur.
We charge VAT for anything that isn't Pension or Bond, whether we implement or not, since 99/100 we use a DFM. Anything pension or bond related we do not.
It's grey grey and grey. There's been a long-running thread on Twitter about this too and I understand that it's been raised to HMRC as a grey area.
We determine that our initial TV charge is VATable but if the recommendation goes ahead, this could be part of the intermediation - and we can split it out. Therefore, advice not to transfer would incur VAT.
No offence taken @arongunningham ! We charge VAT on most fees since we also use DFMs too. And basically do what @Suse1969 does. Our initial engagement says £X plus VAT where applicable.
If you provide advice to a client that recommends they retain their DB rights, and you charge them for it, that is not an exempt supply. You haven't satisfied step 5 above, until you are able to:
"contact the product provider(s) on their behalf and act between the provider and the customer with a view to arranging the sale of the Retail Investment Products"
You cannot do this until you have made the recommendation, at which point, if it is to retain DB rights, you haven't yet done it.
Comments
No VAT if at the initial engagement it is assumed your firm will supply the intermediation if it was advised to transfer.
I have heard @arongunningham 's view a couple of times from other people. I have responsibility for this in my firm so am familiar with all the relevant sections in the VAT manual, and have met with VAT experts to discuss the subject (honestly, I did not choose to do this!). Intention, for want of a better word, does not feature anywhere that I have seen in the manual.
All advice starts as being subject to VAT. It is only where intermediation takes place that it becomes VAT exempt because there is an introduction to a VAT exempt product. So therefore, in this case because no intermediation has taken place, VAT applies.
I think this is incorrect. It's also factually wrong since a SIPP isn't a VAT exempt product, for example.
No offence intended, it would be nice to get to the bottom of it. We have an added issue in that we make use of DFMs which is a whole other can of VAT worms!
https://www.thepfs.org/media/3903332/professional_direction_vat_and_adviser_charging_no_5.pdf
HMRC have detailed a 6 stage process that an adviser would normally follow when entering into
arrangements with customers.1
can be arranged
Retail Investment Products agreed with the customer
the customer’s ongoing position to ensure that the products continue to meet the requirements
of the customer
Where the customer is seeking the arrangement of a Retail Investment Product and the adviser performs
the arrangements as outlined at stage 5 above, (regardless of whether the sale of the product is finally
concluded): and is able to evidence that they have done so; the services in stage 1-6, which fall within
the agreement concluded with the customer, will be VAT exempt.
Where there is no evidence of such product arrangement services or where one or more of the stages
are contracted for under a separate agreement, so that the service provided to the customer is that of
general advice or recommendation only, any charges to the customer will carry VAT at the standard rate.
The VAT liability depends on what is done by the adviser and it makes no difference whether a fee is
levied up front or over the life of a product, for example with regular contribution products.
@arongunningham but stage 5 does not occur (4 may occur via the APTA analysis) as there is no arranging a sale of an Retail Investment Product????
But those are steps you intend to carry out for the client as part of your initial engagement, hence it says regardless of whether the sale of the product is finally concluded.
It also says:
"In order to qualify for exempt intermediation, an adviser would need to clearly evidence to HMRC that
there has been customer specific interaction between the adviser and the product provider in relation
to the sale of exempt products. Providing a customer with product provider material or information on
products is not sufficient to demonstrate intermediation has taken place.
HMRC have stated that a firm would need to evidence that the customer intended to purchase a
retail investment product, following on from recommendations made by the adviser."
"specific interaction between the adviser and the product provider in relation
to the sale of exempt products" - does not occur
"a firm would need to evidence that the customer intended to purchase a
retail investment product, following on from recommendations" - again does not occur.
A rather grey area here...
It definitely is a grey area.
We charge VAT for anything that isn't Pension or Bond, whether we implement or not, since 99/100 we use a DFM. Anything pension or bond related we do not.
It's grey grey and grey. There's been a long-running thread on Twitter about this too and I understand that it's been raised to HMRC as a grey area.
We determine that our initial TV charge is VATable but if the recommendation goes ahead, this could be part of the intermediation - and we can split it out. Therefore, advice not to transfer would incur VAT.
No offence taken @arongunningham ! We charge VAT on most fees since we also use DFMs too. And basically do what @Suse1969 does. Our initial engagement says £X plus VAT where applicable.
TBH I can't actually remember a DB case, let alone a do not transfer case.
I should never have got involved in this LOL
It's Friday
If you provide advice to a client that recommends they retain their DB rights, and you charge them for it, that is not an exempt supply. You haven't satisfied step 5 above, until you are able to:
"contact the product provider(s) on their behalf and act between the provider and the customer with a view to arranging the sale of the Retail Investment Products"
You cannot do this until you have made the recommendation, at which point, if it is to retain DB rights, you haven't yet done it.