VAT on financial services

Tax Question of the WeekPosted by Tony Hawkins FCCA Fri, November 04, 2016 10:08:21


I am not VAT registered. I am financial intermediary; my turnover is about £100,000. I receive commission from mortgage providers for introducing customers to them and I have heard that some intermediaries doing the same type of work are VAT registered and are accounting for VAT at the standard rate. Why is this?


In order for a supply of financial intermediary services to be exempt the intermediary must:

1. bring together a person seeking a financial service with a person who provides a financial service;

2. stand between the parties to a contract and act in an intermediary capacity, and

3. undertake work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed (VAT Notice 701/49, section 9.1)

Most practitioners receiving commission from mortgage lenders for introducing borrowers meet conditions i) and ii).

However, it is the final requirement to undertake work preparatory to the completion of a contract that may not always be met, and if it isn’t met, then the commission would be taxable and standard rated rather than exempt.

For your client this means that it really depends on how much work he is doing for the customer or lender. If your client just recommends a mortgage provider to the customer and takes no further part, the commission will be for a taxable supply and count as taxable turnover for VAT registration.

If, however, your client is helping to set the terms of the contract or make representations on behalf of a customer, then they are doing work preparatory to the completion of a contract and so the commission is exempt.

It may be that your client acts differently depending on the customer and so would be making both taxable and exempt supplies. If this is the case your client only needs to VAT register if the taxable turnover exceeds £83,000.

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