In terms of the commercial background which has given rise to the discussions, this relates to the increasing need for FAs to charge fees to their customers (the investors) instead of or in addition to them receiving a commission from the underlying supplier of the financial product.
This is as a result of revenues from commissions decreasing – a common scenario across a number of industries in the past few years as underlying suppliers find equally effective routes to market by direct selling eg via the web. From a VAT perspective there are usually two scenarios to consider here, and nothing has changed on this recently.
Firstly, is the FA or other agent/intermediary now simply receiving his revenue from his client rather than the underlying financial institution? If so, and if he is doing exactly what he was doing before in terms of making the same arrangements to effect the underlying financial transaction, the VAT treatment of the revenue remains the same. The same issue arose a number of years ago in the travel industry when business travel agents were forced to start charging increased transaction fees to their customers as airlines etc slashed commission rates. Provided they do the same as before in arranging the transaction, the fee for arranging passenger transport is zero rated in the same way as commission.
The second scenario is one where general/non transaction specific advice is provided for a fee – this is a different activity to arranging a loan/purchase of shares etc and there is currently no scope to exempt such fees from VAT. However looking again to the business travel industry, it was able to agree with HMRC that its monthly management fees to clients can be pro rated to reflect the proportion of zero versus standard rated travel arranged.
Does this offer a glimmer of hope for FAs?
If you would like to discuss this in more detail give Julie Park a call on 01962 735350 or email: firstname.lastname@example.org