VQOTW: VAT Exemption for Financial Intermediary Services
Our client is an independent financial advisor and carries out various activities including investment advice, financial health-checks, providing mortgage referral services and so on.

What are the VAT liabilities of these services? Should VAT be charged on commissions or mortgage referral fees?

The VAT liability of your client’s services would depend on whether they are acting as a financial intermediary for VAT purposes.

The VAT exemption conditions for financial intermediary are a lot stricter than that of an insurance intermediary. VAT Notice 701/49, section 9.1 (https://www.gov.uk/government/publications/vat-notice-70149-finance/vat-notice-70149-finance#section-9) states that:

“A supplier of an exempt intermediary service is a person who:

  • brings together a person seeking a financial service with a person who provides a financial service
  • stands between the parties to a contract and acts in an intermediary capacity, and
  • undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed”

All three of the above conditions must be met for the supply to be exempt from VAT. In relation to the last condition, HMRC manual VATFIN7250 (https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin7250) states that this includes helping a client to fill in an application form, checking and then forwarding them to the provider of the financial services, or includes a distinct act of mediation (see VATFIN7230), such as negotiating the terms of a contract.

The services being provided by your client will need to be considered in relation to the conditions above to ascertain whether they are acting as a financial intermediary and whether the services qualify for VAT exemption purpose. If the conditions are met, exemption will apply whether the client charges a fee to the individual or receives a commission from the financial institution.

Any services of advice only remain standard-rate. VATFIN7665 https://www.gov.uk/hmrc-internal-manuals/vat-finance-manual/vatfin7665 provides a helpful checklist to determine where initial advice may morph into an exempt intermediary service.

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VIP VAT Consultant
0844 892 2473

Phuong has been working as a VAT consultant for over 5 years. Starting out at one of the big 4 accountancy firms, she specialised in advising government and public sector clients as well as having exposure to general business and charities. Phuong has a wide breadth of VAT knowledge and particular expertise in advising on the VAT implications of land and property transaction, transfers of a going concern and partial exemption.

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