Ruling in IFA market could have flow-on affect for brokers
Biba has warned that a Customs and Excise office ruling on VAT in the financial advising market could have implications for insurance brokers.
In April, local VAT offices issued notices to two IFA networks stating that VAT should be charged on services provided by the networks to their appointed representatives. VAT is currently not charged on these services.
The Association of Independent Financial Advisors said at least one of the networks was challenging the ruling.
Biba regulation and compliance manager Steve White said that if the decision was upheld, its implications could go beyond IFA appointed representative networks.
Broker Network chief executive Grant Ellis said a previous ruling established a precedent that any transaction that related to the performance of an insurance contract was exempt from VAT.
As a result, he said that Broker Network charged its members two different types of fees: a percentage of commission on insurance transactions that did not attract VAT, and an upfront fee for additional services such as marketing support, on which VAT was charged.
But White said the challenge could mean that in future only the customer-facing company would be exempt from VAT.
He said that Biba was seeking both legal advice and guidance from VAT experts on the issue.
He said Biba was concerned that the decision could also result in 17.5% VAT being added to transactions between wholesale and retail brokers.
He said that this would have significant implications for the Lloyd's market.
"We don't think it will be an issue but we are making sure," White said.