HMRC issues post-RDR VAT guidelines for IFAs

Draft guidelines from HMRC on VAT treatment of charges after RDR said IFAs would not have to pay VAT on advice, provided the advice led to a product transaction.

The guidance said: “The term ‘advice’ under RDR covers a broad range of scenarios including primarily recommendation, referral and intermediary work around product distribution which would continue to be VAT exempt under general principles.”

The guidance means that where the adviser had arranged the sale of a retail investment with a customer, no VAT would be due on any charges made to the customer, regardless of whether or not the sale of the product was finally concluded.

However where the service provided to the customer was purely advice or recommendation, any charges to the customer would carry VAT at the standard rate.

VAT liability for ongoing services would depend on the services the customer had agreed the adviser would perform.

The guidance also said IFAs must keep evidence to prove the services they have provided were VAT exempt.

A spokesman for HMRC said: “If it is just pure financial advice, that is taxable. It is where the financial advice leads to a product sale, that is not.”

Chris Hannant, policy director for the Association of IFAs, said nothing in principle had changed for IFAs.

He said the position remained as it was pre-RDR when advice on a product sale would be exempt from VAT, but if the adviser was purely giving isolated advice with no product sale, he would be liable.

He said: “It is rare advisers would find themselves conducting pure advice as opposed to advice leading to a transaction so the overwhelming majority of advice situations will be exempt.”

RDR had originally put a question mark over VAT because the new legislation shifted advice into a different category, charged on its own rather than in relation to a product sale.

Nick Cann, chief executive of the Institute of Financial Planning, said HMRC’s guidance was a good outcome for most advisers.

However he added: “Those offering comprehensive financial planning must be careful not to suggest they are not offering intermediation if they are not charging VAT, and if they are providing financial planning but outsourcing discretionary fund management they may not be exempt.”

Adrian Lowcock, senior investment adviser for London-based Bestinvest, said: “There is a little bit more emphasis on adviser responsibility in regard to ongoing services but that should be clearly documented anyway.”