He is concerned advisers will be deterred from pointing clients in the direction of DFMs if their services become less price competitive.
“From an adviser perspective, if they advise a client on a retail investment product then this could be more attractive as it is not subject to VAT. Some DFM charges are subject to VAT so this could deter advisers and clients from going down the DFM route due to expense, even if the DFM route was a suitable solution for the client,” he says.
Gavin Jones, chartered financial planner at the Old Mill Group, also suggests the lack of clarity over this issue in recent years has been damaging for the industry as a whole. “If there are further changes to VAT it is essential that they are implemented swiftly and conclusively. The uncertainty over VAT in the past few years hasn’t helped anyone and the last thing anyone wants in the coming months is more uncertainty,” he adds.
The FSA is set to publish final guidance on the issue in April.
Katie Holliday is a freelance journalist
VAT: What it means for advisers
Parmenion’s head of compliance and partner Jeanette Cook, explains the current position when it comes to VAT and adviser business models.
Where VAT exemption applies:
Adviser fees are exempt from VAT where the Adviser undertakes to arrange a transaction in an exempt financial product. This is fundamental. It is the Adviser’s participation in the procurement of a VAT exempt product that enables VAT exemption.
Where VAT must be charged:
Advisory services are not, and have never been, VAT exempt. Anyone offering pure advice to a client will charge VAT. In this respect the abolition of commission has not changed the VAT treatment.
Where advice on an exempt product does not lead to acquisition:
If advice is given in relation to exempted products – regardless of whether the client takes up the product – VAT is not chargeable on the advice given. This is because the advice given was expected to lead to a transaction in an exempt product.
VAT fightback - industry reaction
Jeanette Cook, head of compliance and partner at Parmenion:
“VAT is often a complex issue and the answer to when to charge VAT is not always clear. VAT exemption applies where the adviser undertakes to arrange a transaction in an exempt financial product. This is fundamental. It is the adviser’s participation in the procurement of a VAT exempt product that enables VAT exemption.
