Financial services and VAT
Following an industry-wide review of the financial services sector by the FSA, many individuals or businesses involved in this area will be concerned at the uncertainty caused by the regulatory changes. One key aspect of this uncertainty will be the VAT implications.
In mid-October HMRC is due to launch an informal consultation on the VAT treatment of fees which financial advisers receive from retail clients. This in part is a reaction to the fact that commission from retail product providers will no longer be allowed for contracts commencing after the requirements of the Retail Distributing Review, (RDR), come into effect from 1 January 2013.
IFA’s often supply a mixture of services such as providing advice, arranging financial transactions and an overall management service for their clients. Whilst some IFA’s may be providing a number of services which are all exempt, others may be taxable.
Many IFA’s are not impacted by VAT as they are not registered, however the level of uncertainty on the VAT treatment of their supplies means that there is a risk that VAT complexities could arise. After the review, IFA’s could find their services are liable to VAT and that they need to register.
At the moment, nothing has changed but there is a possible current VAT exposure should HMRC deem the VAT treatment is incorrect, and the potential for major change depending on the conclusion of the review.
So, considerations for IFA’s going forward are:
1. A possible unexpected exposure to VAT and VAT registration.
2. Ensuring clients are informed of any change in the VAT consequences.
3. A need to set out contracts in more detail, with a view to the VAT ramifications.
4. Consider the impact of any change on fees and income.
14 October 2010
Who to contact?
If you have clients within the financial sector and wish to clarify their position, in the first instance please contact Craig Hughes on 07717 840 596 or email chughes@edftax.co.uk.