Taxbriefs Commentary Library

HMRC’s final guidance on VAT and adviser charging

John Housden, 19 Apr 2012


The place of VAT in the advice process under RDR is an issue that has been rattling around for many months, with a variety of views expressed on the boundary between exempt and non-exempt advice. At the end of February HMRC published its final guidance on the subject, largely unchanged from the draft issued last autumn.

The guidance stresses that “from a VAT perspective, general financial advice is not synonymous with the term ‘advice’ for the purposes of the RDR rules”. HMRC considers that “a broad range of functions, including primarily recommendation, referral and intermediary work around product distribution” which are within the RDR definition of ‘advice’ will “continue to be VAT exempt under general principles”.

HMRC says that “the adviser’s role in the retail investment market will normally involve them entering into arrangements with the customer under which they might” carry out a six stage process which they outline. Where “the customer is seeking the arrangement of a retail investment product” and the adviser takes an intermediation role (stage 5 of the advice process), all the stages of the service will be VAT exempt, even if there is no product sale. In this context ‘retail investment product’ follows the FSA definition, so it excludes protection-only insurance and charges for securities trading. Discretionary fund management (DFM) is also excluded, although where DFM is within a retail investment product (e.g. SIPP), the retail investment product rules would normally apply.

HMRC expects the adviser to be able to provide evidence of the ‘product arrangement service’. That evidence needs to be “specific to the services performed for the customer and demonstrate that the adviser acted between the customer and the product provider with a view to arranging the sale of retail investment products”.

Where there is no such evidence, VAT will apply. The VAT exemption will also be lost where one or more of the advice stages are contracted for under a separate agreement, so that the service provided is that of general advice or recommendation only.

HMRC’s six stages of advice

1. Gather information about the customer (fact-find);
2. Carry out research to find suitable investment options;
3. Provide the customer with reports, financial health checks, forecasts;
4. Recommend specific investment products to the customer, including the prices at which these can be arranged;
5. Act between the product provider(s) and the customer with a view to arranging the sale of the retail investment product agreed with the customer;
6. 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.

This article first appeared in the March edition of Financial Timesaver – the monthly newsletter for the busy financial adviser. .


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John Housden

Editorial Consultant

John Housden is a qualified actuary who has worked in the personal financial services industry for 40 years.

A former technical director for a life company and longstanding contributor to a wide variety of Taxbriefs publications.


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