Intermediaries and VAT

[Anonymous]

I hope you can help. I have reviewed all the hmrc guidance notes and still a little unsure. Its a bit of a story and I apologise but I really need to get to the bottom of it, I have discussed it with my accountants and they haven’t been a great help, back to hmrc guidance and pushing me to decide.

I own 2 companies, an IFA practice ( VAT exempt) and a pension misselling firm. The misselling firm gets new clients to review and claim against the bad advice, they do not charge the clients any fee. The misselling firm refers the client to the ifa firm for financial advice and if the clients take the advice the ifa firm pays a fee to the misselling firm for the introduction, these fees are over 70k pa.

As I own both firms I can orchestrate the firms to do whatever paperwork or contracts etc needed. I am aware that hmrc likes the – party to the contract or

This is off the hmrc site
“In addition to bringing together someone seeking and someone providing financial services, note (5) further defines the words “intermediary services”. In the case of financial services falling within item 1, 2, 3 or 4, an intermediary must perform work preparatory to the conclusion of contracts for the provision of financial services. This could include helping a client to fill in an application form, checking and then forwarding them to the provider of the financial services.”

I want to ensure that the ifa firm doesnt need to pay vat on top of the fees that go to the misselling firm.

I hope you can help

Mark

[Marie Stein]

Hi Mark

This is a very difficult area of VAT law and I’m not surprised that your accountants haven’t been able to help much. Even for specialist VAT consultants, it is difficult and there are a lot of factors to consider. I’m not going to be able to give you any more definitive help here but there are a few issues that I think you might want to consider before deciding how to proceed.

I know that the whole issue of misselling is very big at the moment and it would be useful to know how other IFAs are dealing with these situations to see how your arrangements compare. For example why have you set up the pension misselling firm (I’ll call it the PMF for brevity) in a separate company to your IFA company? HMRC are always curious about such arrangements.

But the main issue is whether the introduction service would be exempt anyway. You say: “The misselling firm refers the client to the ifa firm for financial advice and if the clients take the advice the ifa firm pays a fee to the misselling firm for the introduction, these fees are over 70k pa.” The way I understand the rules is that if the service provided by the IFA is financial advice, then this would be standard rated and not exempt so the associated introductory service would be standard rated.

So I’d have to know a whole lot more about what the IFA co is doing before I could even be certain that the introductory services are exempt.

There is an alternative that may work but again it would depend on the nature of the IFA co’s business and i’d need more information.

Sorry I can’t give you more helpful information, but I would be happy to help out via my formal consultancy if you want full advice. I’d be happy to have a no-obligation discussion with you about the situation before you have to decide whether to commit to anything. Send me your details using the contact form if you’re interested.

Kind regards
Marie

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