13 Oct IFA Claims Most Advisory Transactions Carried Out Under RDR Should be VAT Exempt
Malcolm Small, who is the acting director of Tax Incentivised Savings Association, has recently claimed in an interview with FTAdviser that the majority of advisory transactions carried out by financial advisers should be exempt from VAT, a view that is apparently supported by the outcome of a recent meeting with HMRC.
Mr Small claims that the meeting held earlier in the month should likely see 98% of the advisory business continue to remain exempt from the payments, even after the implementation of the RDR.
Apparently in the meeting HMRC indicated that all advice leading to a transaction would be exempt, however it has contradicted this by claiming that VAT would be levied in situations where a fee is charged separately for the advice.
Mr Small is not concerned however, stating "The vast majority of cases means there will be no VAT charged as intermediation is not VAT-able but service is.
"When it is explicit from the outset that there is no intention to transact - so you have just received pure advice - that will be VAT-able as it's a service."
Simon Mansell, managing director of Worcester-based IFA Temple Bar, also welcomes the news, however he claims that there may be a contradiction with the upcoming RDR.
He added "One can assume cost would be an important part of consumer benefit so irrespective of whether its right or wrong, clearly an increase of 20 per cent in the costs does not match the FSA's rationale for RDR.
"Some people are taking the view that that nothing will change post-RDR. I understand that transactional advice will be exempt, but that raises the question of whether the regulator is trying to separate advice from product and, if so, isn't that a contradiction to the RDR?"
Richard Gough, director of Castle Court Consulting, claims that such charges have been blown out of proportion, stating "I agree with Mr Small that almost all advisers will not pay VAT.
Nothing will change post-RDR except for indemnity rules.
"What we need is clarification as there is so much confusion amongst IFAs. Should one version of adviser have preferential treatment? No, that is wrong.
"People are creating a problem by not actually understanding what the current position is. There are no new set of rules post RDR - nothing is changing."