VAT and adviser charging
parawhat
Member
Hi
I'm sure you're familiar with the VAT treatment of financial advice i.e. general advice is VAT'able whereas intermediation of a product is VAT exempt. You can read more here or here.
The rules seem quite straightforward to me, but all the anecdotal evidence I've come across is that very few IFA firms actually charge VAT on any advice fees they charge clients.
Given most annual reviews probably don't pass the test for VAT exemption (see Quilter 'Client B' example), except perhaps for insurance bonds and insured pensions, something would seem amiss.
What's your experience? What does your firm do?
Jonny (paraflex)
Comments
I would agree with the second paragraph above; I sat on a roundtable discussing this a few years ago and all advisers at the table recommended DFMs and only a couple said they charged VAT on their advice fees, which appears to be wholly incorrect. Caveat that with some very small advisers or recent start ups may not exceed the registration threshold.
My understanding the VAT exemption for a contractual annual reviews depends on the services initially performed and the agreement with the client. Vatfin7665 and Vatfin7670 says that if the you do steps 1-5 under the same agreement, and the annual review is also included under the initial agreement, then the ongoing review will be exempt.
If the ongoing service is contracted under a separate agreement then you have to evidence that you have performed steps 1-5 each year for the ongoing fee to be exempt.
We now include all services under one agreement, explaining the VAT treatment at each stage.
Thanks Tom. Interesting what you say about the contractual element of annual reviews. I'll do a bit of reading up on that.
We charge VAT for our ongoing advice fees.
VAT is done incorrectly right across the financial intermediation sector in my experience.
I have always assumed that it is a hornet's nest that HMRC doesn't want to kick.
But I see lots of charging structures where it isn't obvious that VAT shouldn't apply.
@SA96 That's interesting. Why is that? Is it pure non-regulated financial planning you do?
@benjaminfabi Hi Benjamin. Pretty much my experience too, but just wanted to revisit and check again. Ta.
If it helps, only one of my clients charges VAT and they apply this depending on the advice being given to use bespoke DIM or not.