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If a financial adviser recommends a tax efficient wrapper (ISA)

Customer Question

If a financial adviser recommends a tax efficient wrapper (ISA) that is then managed by a DIM, is this a VATable service?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
The management fees are liable to VAT; they are a standard rated supply. The ISA itself, of course, is not. Thus you are recommended to aim off for managers with the lowest fees. Of course, the quoted fees often expressed as VAT inclusive, but watch out when selecting.
I do hope I have thrown some light on your problem.
Customer: replied 2 years ago.

Thank you. I am looking at this from a financial advisers perspective rather than a client.

Say I am the financial adviser. I recommend a client invests in an ISA and that the money is then managed by a DIM. Is the primary activity the recommendation of a vat exempt product (ISA) and therefore makes the fee payable vat exempt?

I know that if a financial adviser simply recommends a DIM to a client that fee is vatable irrespective if the DIM invests the money in an ISA.

I am looking for clarity in the situation that the adviser recommends a vat exempt product that is then subsequently managed by a DIM and what the treatment of that is - vatable or vat exempt?

Expert:  bigduckontax replied 2 years ago.
Pinsent Masons [Solicitors] have the following advice, following discussions with HMRC:
'These review services will only be exempt if they are either agreed at the time the customer initially engages with the IFA and form an ancillary part of the supply of exempt intermediation or (as outlined in our guidance) qualify for exemption in their own right because the client is looking to increase/amend their portfolio and the IFA arranges those transactions for them – any other periodic review services will be taxable," they added.
"Services which are provided on an ongoing (rather than periodic) basis are unlikely to qualify for exemption because such services will almost certainly be some form of portfolio management service rather than intermediation and, regardless of who provides them, will be a single composite taxable supply," the spokesperson said.'
In a nutshell, if it's a one off charge than it would be exempt, if ongoing, not.
bigduckontax, Accountant
Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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