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FSA Appointed representative and VAT

There are 2 separate companies for financial services. 1 being principal and the other an appointed representative.

Can anyone clarify how the VAT would work in the following scenarios.

The income is vat exempt.

1. Client belongs to AR. Agreed split 50/50. Income received by Principal. AR then charges Principal for their 50% cut. I presume this charge is VAT exempt.

2. Same scenario as 1 but income received by AR. Principal then charges AR for their 50% (the work has been undertaken by principals advisor). Is this charge still VAT exempt or is their VAT chargeable because of services provided to AR by principal?

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Exemption for FS income?

The test as to whether the commission income is exempt is based on the work undertaken by the intermediary, or intermediaries. Notice 701/49, chapter 9 explains this. The test is summarised:

A supplier of an exempt intermediary service is a person who:
• brings together a person seeking a financial service with a person who provides a financial service
• stands between the parties to a contract and acts in an intermediary capacity, and
• undertakes work preparatory to the completion of a contract for the provision of financial services, whether or not it is completed.

If an intermediary merely shares commission, without doing any work, then the fee must be standard rated.

(I have assumed all parties are UK-based. If not, then different rules apply!)

Thanks (2)