VAT FOR FCA REGULATED ADVISERS (RETAIL) - WHEN DOES THE INTERMEDIATION EXEMPT APPLY?

What does “Intermediation Exemption” refer to? 

The Value-Added-Tax (VAT) Intermediation Exemption can be utilised on services supplied by financial advisors in certain circumstances and avoids being forced to charge. For the exemption to be valid, the service must be categorised as “intermediation” and performed by an “intermediary.” 

What is “intermediation”? 

Intermediation is the process of connecting two or more parties to facilitate a transaction between them. “intermediation” is a word often used in discussions of finance to describe when an adviser facilitates a transaction between a customer and a supplier of financial products. 

Who is an Intermediator? 

A person who puts together parties who wish to enter a financial transaction but who does not intend to enter the transaction themselves is referred to as an intermediary.  

Who qualifies as an Intermediator for VAT purposes? 

To be considered an Intermediator under the financial service intermediation exemption for VAT, a person or entity must fulfil all the following requirements: 

• Have a license from or be regulated by the Financial Conduct Authority (FCA). 
• included inside the Financial Services Register (FSR) 

• Be a member of an FCA-authorised or regulated professional body. 

Warning! Ensure to read the section below – not all services of a regulated financial adivser are exempt from VAT   

What kinds of services qualify for an exemption under the “intermediation” category? 

When an adviser offers services in the following categories, the Intermediation Exemption can start to be considered: 

• cause customers to buy, sell, or do something else with their financial instruments.  
• require customers to manage their own financial instruments.  
• managing a client’s money account or a custody account on the client’s behalf. 

For the service to be considered an intermediary, it must involve the following elements: 

• The coming together of parties who intend to embark into a transaction and the exchange of relevant information between them 
• The act of making the transaction easier to complete. 
• Offered by a third party acting as an intermediate. 

• Be a subset of the primary financial service; it is not the primary service. 
• The intermediary does not receive a separate fee for the ancillary service. 

The main financial service/product is exempt from VAT if it falls within one of the following categories: Deposit-taking, Lending, Insurance, or Investment. There are three different ways that the service might be delivered: in person, over the phone, or online. 

What if I am not eligible for the Intermediation Exemption? 

If you don’t fall under the Intermediation Exemption, you may still be able to file a claim for one of the other reliefs that pertain to financial advisory services. Alternatively, charge your customers value-added tax for the services you offer. 

For accountants that have in depth experience working within the UK financial services sector, please contact us at 02033 259 341 or email info@spondoo.co.uk