HMRC planning to exempt platforms from some VAT charges

Money Marketing said that HMRC is set to confirm that platforms will be exempt from VAT liability for execution and custody activities they engage in. The draft guidelines it said it had seen, and which HMRC is still consulting with industry on, state that platforms may be liable for VAT if they provide "advice, information, research and market data" services, according to its report.

Money Marketing said HMRC is expected to issue finalised guidelines later this month.

Indirect tax expert Darren Mellor-Clark of Pinsent Masons, the law firm behind Out-Law.com, said that, if the guidelines are introduced as reported, platforms would need to be "constantly aware" of what services they are offering.

"Amidst the recent and forthcoming changes to the regulation of the retail investment market, platforms have been reviewing their business models," Mellor-Clark, who is also a member of the Investment Management Association’s VAT committee, said. "The nature of platforms' service offering is constantly changing and impacts on payment arrangements within the supply chain as well as fees charged to the customer. The changing models present a challenge to HMRC to set rules that reflect commercial reality."

"It would appear, from what has been reported, that the HMRC guidelines will allow platforms to engage in their core functions, of executing transactions and providing custody of dematerialised assets, without that activity triggering liability for VAT," he said. "From a platform providers' perspective therefore, the direction of travel that appears to be being pursued by HMRC on this issue could have been a lot worse."

"However, in a fast-changing market, platforms would need to be constantly aware of what services they are providing because, if they step outside of exempt activities, such as by providing market data services, conducting research or offering bespoke advice, they could start needing to account for VAT charges," the expert added.

Mellor-Clark said that the "mass affluent", but not super-wealthy, individuals who tend to use platforms may not be willing to tolerate increases in the annual management charges that apply when they make investments.

Any VAT charges applied to non-exempt platform services may therefore need to be swallowed by the businesses operating within that "value chain", he said, adding that those circumstances may require difficult discussions between the various stakeholders on who should ultimately "foot the bill".

"In its review of the operation of investment platforms, HMRC is consulting on an informal basis with industry representatives as part of this process," a spokesperson for HMRC said, according to Money Marketing's report. "We are not focusing the review on any particular aspects of the operation of these platforms, and all areas are under consideration, including the different charging structures used by these platforms for the provision of portfolio management services."