HM Revenue & Customs has changed its stance on VAT under adviser-charging, saying liability will be based on the intention of the service when advice is originally arranged.
Tisa director of policy Malcolm Small says this will render the majority of advice situations exempt from VAT, with the exception of a client report produced with no intention to sell a product or service.

In August 2010, HMRC and the Association of British Insurers published guidance reiterating that VAT is payable on advice but not on product sales. It said if advice leads to a product sale, then the adviser must determine which is the predominant service.

But following a meeting last week with HMRC senior policy adviser David Coppins and representatives from the FSA, the Tax Incentivised Savings Association, Aifa and the Investment Management Association, HMRC has moved away from this position.

An HMRC spokesman says: “The VAT liability of the process is governed by the intention. If the intention of the agreement between the customer and the adviser is to enter a process leading to the arrangement of an exempt transaction, this is VAT-exempt intermediation. If this is not the intention, then the supply would be advice and therefore taxable.”
HMRC is due to publish draft guidance on VAT next month.

I think that this is a positive change from the previous indications, which was looking at what the predominant service was. We now have clarity that It is looking at the intention at the outset. I think this is going to be a lot clearer and a lot simpler.