In mid-October HMRC is due to launch an informal consultation on the VAT treatment of financial advisers' fees received from retail clients. This reflects the fact that commission from product providers will no longer be allowed for new contracts that commence after the requirements of the Retail Distribution Review (RDR) come into effect from 1 January 2013.

Scott-Moncrieff is one of the small number of accountancy firms asked by HMRC to comment on its proposed guidance, so this is a great opportunity for you to influence the outcome. By sharing your views with us, we will be able to reflect your opinions in our comments.

When HMRC launches its consultation, we will conduct a survey seeking your responses on the proposals. Alternatively, if you want to share your concerns even before the consultation begins, please feel free to do so.

The VAT consequences of the RDR are potentially significant. Financial advisers' services to clients could be subject to VAT where they are predominantly advisory in nature, or VAT exempt if they are essentially those of an intermediary.

The VAT status could be determined by reference to the intentions that exist at the time advisers agree their fees with clients. Letters of engagement may be key pieces of evidence in determining the VAT status of advisers' services.

It is possible that some financial advisers may find that, pre-RDR, all their commission-based income is exempt, and post-RDR all income from clients is VATable, even though the services provided are exactly the same.

We will send an alert when we launch our survey. To read more about what the RDR rules mean please click here.

Contact:

Alan Glen, Manager, VAT

T. 0131 473 3500