Although 1991 was also when my brief career as a solicitor began, it seems probable future legal historians will attribute greater significance to that year’s landmark decision on VAT on Jaffa Cakes. As you may be aware, McVities maintained its creation was a cake and therefore not subject to VAT while the Revenue reckoned it was a biscuit and, as it had a chocolate topping, a ‘luxury’ item on which rather a lot of tax was due.
With the help of an oversized Jaffa Cake, McVities successfully argued its point, the key issue being – and stop me if I am getting too technical here – that, when they grow stale, cakes harden while biscuits become soggy. I also now know courtesy of www.bakeryandsnacks.com, which pretty much does what it says on the cake tin, that recent years have seen marshmallow teacakes become exempt from VAT on the same reasoning and Pringles similarly blessed due to their containing insufficient potato to be considered crisps.
While they may enjoy such certainty on the contents of their office kitchen cupboards, however, advisers are not quite so fortunate when it comes to what helps put the cakes and biscuits on the meeting-room table. A broad-ranging conversation with one of the big life offices this morning revealed a significant portion of the technical questions from advisers this year have related to a pair of three-letter acronyms – neither of which being the one that may first have sprung to mind.
Forget RDR – chance would be a fine thing, I hear you mutter – the current big headache for the advisory sector is VAT and particularly in the context of DFMs. Nevertheless, if you are one of the sufferers, some good news is that the DFM angle is one of the points addressed by Paul Kennedy, director of tax and trust planning at Fidelity FundsNetwork, in the piece he wrote for Adviser-Hub on VAT and RDR.
The bad news – as hinted above and not least because this is an area in which the European Courts have taken an interest – is nothing is completely certain. “The precise nature of how discretionary investment manager and IFA agreements operate regarding commissions and/or fees will differ,” notes Paul, although he adds: “At a fundamental level discretionary investment management services provided to a private investor are subject to VAT in the UK.” Advisers still need to be very careful here about having their Jaffa Cake and eating it.
More from Paul Kennedy: Taxonomy of adviser fees
The move to adviser charging will make tax more complex not less, with most scenarios being client-specific rather than allowing a ‘one size fits all’ rule.