The recent clarification by HMRC of their guidelines regarding adviser charging does appear to relieve many advisers of responsibility to collect VAT. Or more accurately presents an opportunity to avoid the responsibility for collecting VAT.

If you can prove that you observe the Six Step advice/intermediation process then all of your advice is potentially exempt as part of this process. However, the emphasis will be placed on presenting evidence of the advice as part of the intermediation service.

No evidence, no exemption.

It is worth noting, HMRC have allowed ongoing advice to be included in the process by stating that you can cycle round the intermediation process, exiting and re-entering the intermediation gateway as required.

What might this mean in practice?

If you don’t have a time management system and some sense of the costs associated with the six steps of the intermediation gateway you will need to register for VAT when you expect your total revenue to exceed the annual VAT threshold of £73,000.

If this is the case, we expect the room to split between those that will ultimately find it easier just to register for VAT and those that will commence the effort to implement or improve systems and records to provide the necessary evidence of the six step process.

It is also highly likely that the second group may incur cost (in terms of personal effort) that offset the reduction in income resulting from collecting VAT without increasing client fees.

This begs the question, why bother with the effort of collecting the evidence?

We see it as a simple choice between doing as little as possible to comply with changes in regulation and the knock on effects that they have or, making the most of a regulatory obligation and getting value out of the process.

The cost of developing the operating procedures and providing the evidence required to avoid collecting VAT is an investment in your business with scope for general improvements in efficiency and focus on client services.

At this point in time if you cannot show that you follow the six step process for your clients the more relevant question is what are you doing for your clients? 

Just to keep it fresh, advice subject to VAT will remain only a component activity, as long as advisers enter the gateway to the advisory process through the six steps towards a product sale:

  •  fact find;
  • research solutions;
  • develop reports;
  • make personal recommendations;
  • arrange the products; and
  • monitor and review

The great part is that the advice will be exempt even if no product sale results from the process.

Back to our starting point, if you don’t have the ability to record your time and match costs to the stages of the Six Steps how do you know where you incur costs, where you earn money and more importantly where the client thinks you provide “value”.

Remembering that each business is to some extent unique, we are convinced that you will be surprised by the results of analysing your business in this manner.

Firstly, clients may well pay more for the least expensive part of the process. If this is the case double the focus on this aspect and make the most of the cost associated with less well regarded steps in the chain. Alternatively, make sure that the costs of less lucrative areas are covered by the profit on the “value” component.

There are endless variations to the steps in the process and you need to know what works for you and your business.  

However, by taking this approach the byproduct can at least be the fact that you can sleep at night knowing that you have the evidence to fend off the VAT man if he ever comes calling.




Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.