ABI backtracks on VAT treatment of adviser charging

The Association of British Insurers (ABI) has promised to clarify its guidance note on the VAT treatment of adviser charging after IFAs flagged up concerns about its accuracy.

The ABI guidance had implied that clients who did not pay upfront for arranging a product and ongoing service would be hit with VAT, but it has now said that provided the payment is arranged upfront, clients will not pay the tax.

ABI policy adviser Alexander Smith said that HMRC had been approached for permission to revise this section of the guidance note, adding that this could take around four weeks to be approved. ‘We were never going to be able to give a black and white picture because circumstances change,’ he said.

Skandia and a number of advisers had flagged up concerns that the ABI's initial interpretation of VAT rules on fees would clash with the objectives of the retail distribution review.

‘It is unfortunate that the ABI are backing away from a document that they said was agreed with HMRC,’ said Colin Jelley (pictured above), head of proposition marketing at Skandia. ‘It is good news for advisers to have that clarity and it would be nice for the ABI to confirm that the document is being updated.’

IFA Paul Harding said that there had been no change HMRC rules on VAT and that he hoped the ABI guidance would be clarified. ‘I hope they do change it because it is simply misleading,’ said Harding, director of Kent-based Chevening Financial.

The ABI said its gudiance should have read: ‘To be exempt under a contact for predominantly exempt product arrangement services, payment for all services must be agreed at the time the contract is entered into and the nature of the review services to be provided must be clearly laid out in the contract.’ The note currently states that the payment must be 'made at the time the contract is entered into'.