One for IFA’s: Have you been overpaying your VAT?
Following the Retail Distribution Review (RDR) a range of VAT questions arose about what would be the impact on Financial Advisory firms from the VAT perspective. The specific issue was in the consideration of what would be a taxable provision of advice as distinct from being a VAT Exempt provision of financial services by an intermediary.
In reality from a VAT perspective none of the liabilities for VAT had changed but the review did prompt IFA’s and Networks to audit the nature of their engagements with clients in order to verify that they were accounting for VAT correctly on their supplies of services.
HMRC will be strict in their interpretation of what they consider fall as a VAT Exempt supply of intermediary services and they have issued guidance to expand on what they consider to be the role of an “intermediary” and the nature of the services accepted to be regarded as VAT Exempt financial services.
July of this year saw a report hit the headlines in this area – proof if it were needed that IFA’s need to be alert to the VAT treatment they apply to their supplies. The report related to a claim for overpaid VAT by the Birmingham based financial advisory firm Barnett Ravenscroft Wealth Management who had made a claim on HMRC for overpaid VAT on fees it felt that it had charged its clients in error.
HMRC refused the request stating that as the fees charged related to the introduction to a platform who then instructs a third party to buy/sell the actual investments - these fees fell outside of the VAT Exemption. In addition, HMRC then raised an assessment on the firm for VAT which it stated had been underdeclared on “initial fees” charged to clients.
Part of the argument Barnett Ravenscroft had presented to support its case for VAT Exemption was the similarity of the facts of their arrangements to those in the Bloomsbury Wealth Management case which, whilst it was a First Tier Tribunal case which doesn’t create a precedent, is a ruling that provides a reliable insight on the VAT interpretation to be followed by IFA’s.
Faced with HMRC’s refusal and the additional assessment Barnet Ravenscroft took independent VAT advice to challenge their view with the result that HMRC backed down on the matter – refunding the firm the £462,528 VAT which it had overpaid and withdrawing the assessment.
We understand that HMRC backed down from pursuing two other firms linked to this matter.
Clearly getting the VAT liability of supplies within the financial services sector right remains a topical issue. Should there still be IFA’s networks and firms that have not closely scrutinised the nature of the contracts they enter into with clients to correctly assign the right VAT treatment, they may either be at risk or indeed missing an opportunity to recover past VAT overcharged.
Centurion VAT are at hand if a conversation on this would be of help.