Other Citywire websites
Stay connected:

View the article online at http://citywire.co.uk/new-model-adviser/article/a658299

PFS shifts stance on VAT treatment of rejected recommendations

by Alex Steger on Feb 12, 2013 at 09:43

PFS shifts stance on VAT treatment of rejected recommendations

The Personal Finance Society (PFS) has revised its VAT guidance following clarification from HM Revenue & Customs (HMRC) over whether advice leading to a product recommendation which is then rejected should be vatable.

In its original VAT guidance published in September 2012, the PFS said that if an adviser recommended a product, having obtained illustrations from a provider and passed these onto a client who pays the advice fee but takes no further action, the fee would not be VAT-exempt.

The September guidance said VAT would have to be charged as the adviser had not ‘acted between a product provider and the customer with a view to arranging a sale of a product’.

However, following talks with HMRC the PFS has revised this and now says the fee paid by the client, despite them rejecting the recommendation, would in fact be VAT-exempt.

It said the adviser would not be liable to pay VAT on the fee received because they would have taken five steps of HMRC’s six stage advice process.

HMRC’s own VAT guidance published in March 2012 set out six stages of the advice process which are:

  • factfind;
  • research;
  • provide client with reports, health checks, and forecasts;
  • recommend a specific product, including prices;
  • act between provider and client with a view to arranging a sale;
  • where the client agrees to the sale, monitor and ensure it continues to meet the client’s requirements.

6 comments so far. Why not have your say?

Alistair Hinton

Feb 12, 2013 at 10:45

Whilst this is obviously good news in itself, it illustrates just one of an uncalculable multitude of instances of the absurdly overbearing complexities of tax law and rules, the cost (to the taxpayer, of course) of maintaining and developing which is little short of scandalous and arguably flies in the face of the proper objectives of the taxation system.

report this

Sam Caunt

Feb 12, 2013 at 11:07

I agree that this is helpful but as Alistair infers, it demonstrates how difficult it is to do business these days. The FSA, OFT, HMRC, ICO, HSE are all too happy to say what you cannot do but they never explain what you should do or give a straight answer to a straight question. It is always our risk, up to us to take advice for "professionals" who know little more than we do and if we disagree with what decisions these unaccountable bodies say it is at our expense that we challenge that decision. David Cameron could help small businesses if he only gave these offices mandates to help and explain rather than mandate.

report this

Gordon Hay

Feb 12, 2013 at 11:16

One issue we are still trying to clarify is VAT status of introdcuer fees (and I know "don't pay them" is the easy answer)

When we transact business under Adviser Charging, but have say a 10% payaway to an introducer, how is there 10% rated given it is no longer commission and they haven't been involved in the transaction process.

I assume it should be VATable but no one appears to be able to clarify the position.

Any guidance very welcome

report this


Feb 12, 2013 at 12:31

If you have received the fee, then are you paying an introducer a fee or a commission? Is there anything to stop you from paying it as a commission to an introducer?

As ever, it is unlikely you'll get clear guidelines.

report this

Sam Caunt

Feb 12, 2013 at 12:45

One question we have on VAT. The PFS has differentiated between an invoice paid by cheque and an adviser charge. Actually I am struggling to see the difference. Basically, post RDR, we are now invoicing clients and agreeing with them how the invoice is paid. An invoice can be paid by an adviser charge.

Therefore, if a client pays using adviser charging do we now have to issue an invoice? (Especially if VAT is involved or your firm is VAT registered?) Indeed is it good practice in any case to issue an invoice when adviser charging is involved?

I am aware that you do not have to issue an invoice for services exempt from VAT but if VAT and adviser charging is involved I would imagine you do.

report this


Feb 12, 2013 at 14:04

That would only apply to an ongoing service not linked with the original investment transaction though. Otherwise the adviser charge payment will be exempt will it not?

If the adviser charge is VATable, then may be sensible to issue an invoice so you can account easily for the VAT.

report this

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Opportunities emerge as production moves back home

As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

A spotlight on Alastair Mundy

Alastair Mundy met Citywire's Daniel Grote at the London Stock Exchange Studios for a detailed interview about the Investec Cautious Managed fund.

Sorry, this link is not
quite ready yet