3 July 2012
HMRC’s recent defeat in the First Tier Tribunal (FTT) decision in Bloomsbury Wealth Management LLP (BWM) makes interesting reading for investment managers.
The BWM case concerns an independent financial advisor (IFA) providing services to high net worth individuals. The services in question involved BWM holding an initial meeting to discuss the client’s requirements. BWM would then recommend funds to the client. If the client decided to proceed, BWM would introduce them to the appropriate fund manager, with a view to the client making an investment. BWM would also perform a quarterly ‘rebalancing’ of the investments, based on the client’s instructions.
A fee would only be charged to the client if it decided to invest. Having originally charged VAT on the fees, BWM decided that they were in fact VAT exempt, as consideration for a supply of financial intermediary services. Accordingly, a VAT refund claim was submitted to HMRC. HMRC rejected the claim on the basis that the fees related to a supply of standard rated services. Their first line of argument was that BWM was introducing the client to the fund manager so that the client could receive fund management services. The FTT quickly dismissed this, on the grounds that it was ‘extremely unlikely’ that the client’s principal aim was to purchase fund management services.
HMRC’s second argument was that BWM’s services were predominantly advisory and therefore taxable. This was also rejected by the FTT, which said that, as no fee was charged to the client for the meeting if it decided not to proceed, the meeting (and therefore the advisory element of the service) could not be the element which was most important to the client (i.e. it was not an aim in itself). It was the introduction of the client to the fund manager, with a view to the client making an investment, which was the predominant nature of the service. Consequently, BWM’s fees were consideration for a VAT exempt supply of financial intermediary services.
This case demonstrates the complexity of determining the correct VAT treatment of services which comprise taxable advisory and exempt intermediary elements. Despite HMRC’s attempts to allay concerns about the VAT treatment of fees charged by investment advisors following the introduction of the FSA’s Retail Distribution Review, this case shows that the position is far from clear. It remains to be seen whether HMRC will appeal this decision.
If you are uncertain about the correct VAT treatment of your services, please contact Robert Facer.