Adviser workshop: How to minimise the impact of VAT

Critchleys' Ian Brookes turns to in-house experts to ensure VAT charges to clients are kept to a minimum. Two of his peers agree the tax is complex for financial planners.

The issue

Ian Brookes of Oxford-based Critchleys Financial Planning believes VAT charging is an area of concern for many financial planners but says having a team of in-house VAT experts has helped him maximise his clients’ business.

‘We seek advice from our VAT consultants here so we have an automatic source of knowledge to go to,’ he says.

Keeping bills down

To ensure unexpected VAT bills do not build up, it is essential for planners to have a clear understanding of what parts of the advice process are subject to VAT and what parts are not, he advises.

‘We understand what parts of our advice process we need to charge VAT on. That is essentially strategic advice, even though products might be mentioned in that strategic advice.

‘So, if we do a full holistic review of a client’s circumstances, they might be asking us to help them better organise their finances to achieve their goals. They might feel pensions or ISAs might help towards that. Whilst we are discussing products in a technical sense and in a planning sense, we would still charge VAT on the whole of the advice,’ he says.

‘If the client then asks us to take up those recommendations, on the pension for example, we will not charge VAT on the implementation fees.’

Exemptions and grey areas

According to HM Revenue & Customs, intermediary services are exempt from VAT if the IFA acts in an intermediary capacity and is acting as a conduit to connect the client with a provider.

However, grey areas can arise when clients spend long periods of time deciding whether to take up product recommendations and when the VAT exemption threshold is crossed on a quarterly but not necessarily yearly basis.

Critchleys has a strong record of understanding the more technical details of financial planning, due in part to having its roots in accountancy. The firm was established in 1996 as an accountancy practice and expanded to include financial planning in 1997.