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HMRC internal manual

VAT Insurance

Services of an insurance intermediary: introductory services: Retail Distribution Review - “consultancy charges” for pensions consultants’ services


Employers may seek advice and assistance from “Employee Benefit” consultants and other pension consultants on the setting up of and/or ongoing administration of workplace personal pensions. This market includes group personal pensions, group stakeholder pensions and group self-invested personal pensions - collectively referred to as Group Personal Pension schemes (or GPPs).

Regulatory changes made following the RDR have affected the way that Employee Benefit consultants and other pensions consultants are paid for such services.

Before the changes were introduced, it was common for them to make no charge to employers, but to reply instead on commission paid by the pension provider.

With effect from 1 January 2013 (subject to transitional arrangements). They have been banned from receiving commission based remuneration and must instead agree “consultancy charges” with the employer, which may in some cases be supplemented by separate fees charged directly to the employer.

Please note that this guidance does not cover services supplied to employers or Trustees in respect of occupational pension schemes held through trusts.

VAT Liability

In order to fall within the finance or insurance exemptions, it would be necessary for a pensions consultant to act as an intermediary (or one of the intermediaries) between the individual employees and the pension provider with a view to the conclusion of an individual pensions contract.

Based on the typical contractual arrangements reviewed by HMRC and its discussions with the pensions consultants industry this does not appear to be the position in respect of the services currently provided by pension consultants in return for “consultancy charges”. On the contrary, the “consultancy charge” is a fee paid in return for advisory, administration and other services supplied to the employer. The fact that the (net of VAT) “consultancy charges” are paid via the pension provider does not alter the VAT analysis. The same VAT analysis also applies to any separate fees charged to employers.

Employee Benefit consultants and other pensions consultants should therefore account for standard rated VAT on “consultancy charges” and any separate fees charged to employers for these services.

The VAT treatment of services provided to employees will depend upon the nature of the services provided (further guidance can be found in the VATFIN and VATINS guidance manuals). Services to employees, even if paid for the employer, will not generally attract input tax recovery.

We understand the future use of consultancy charging is still under review and the position could change going forwards. 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.

Employers’ entitlement to input tax

VAT registered employers that receive supplies from pensions consultants in the course or furtherance of their business should be aware that they will normally be able to recover the VAT that is charged to them as input tax, subject to any necessary input tax restrictions. They will not be able to recover input tax on services supplied to employees even if they pay for them.