Advisers who provide services for the setting up and administrating of workplace personal pensions must add VAT to the charges they make to employers, HMRC has confirmed.
Such pensions include group personal pensions, group stakeholder pensions and group self-invested personal pensions – collectively referred to as GPP schemes.
In a briefing note, HMRC said businesses advising on GPPs and employers receiving their services should be aware that fees on GPP advice will attract VAT. Previously, advisors did not normally charge for these services, relying instead on commission paid by the pension provider, a practice which is now banned with effect from 1 January 2013 as a result of the Retail Distribution Review.
Advisers are now required to agree ‘consultancy charges’ with the employer instead, which may in some cases be supplemented by separate fees charged directly to the employer. The HMRC briefing note says that they should charge standard rated VAT to employers on services provided in return for consultancy charges or other fees.
Employers will usually be able to recover the VAT on the charge, but most services to employees, even if paid for by the employer, will not generally be recoverable, it added. If the consultancy charge is used to cover employee advice but does not include arranging a new product, the employer’s VAT will not be recoverable.
HMRC advises that pensions consultants are required to provide a VAT invoice to the employer for taxable services provided to them that are remunerated by way of ‘consultancy charges’, even if the consultant will not receive the net charges from the employer but from the pension provider, who will deduct the charges from contributions and/or members’ funds and remit them to the consultant.
In its note, HMRC also admits that many financial advisers are unsure about how consultancy charging will work in practice, saying: ‘If, therefore, the nature of the services remunerated by consultancy charges changes in future and it can be demonstrated those services meet the conditions for VAT exemption outlined above, any charges made for the provision of those services will be VAT exempt.’