James Hay has told advisers it will begin charging VAT on some of its Sipp fees after a change in HM Revenue & Customs' (HMRC's) stance.
In a letter seen by New Model Adviser®, James Hay has told its customers that following a change in HMRC’s interpretation of VAT rules for insured Sipps, it will be charging VAT on commercial property, specialist investment and income drawdown charges.
‘Previously insurance companies benefited from an exemption from VAT on Sipp charges… this will change on 1 April 2019 and therefore retaining an insurance company status for James Hay Insurance Company Limited has no benefit to our customers,’ the letter from James Hay chief executive Alastair Conway said.
The letter also said Jersey-based James Hay Insurance Company will change its name to James Hay Services Limited and will no longer be regulated by the Jersey Financial Services Commission.
The move is the first time an insured Sipp has confirmed it will be charging VAT going forward and others could also come out with announcements soon. A spokeswoman for Standard Life Aberdeen, which runs an insured Sipp with Phoenix, said: ‘We are aware of these changes and we are fully assessing them.’
The change in interpretation that prompted James Hay to apply VAT charges comes from a HMRC policy paper, which discussed a Court of Justice of the European Union case on pension fund management and what is classed as a special investment fund (SIF) for the purposes of VAT exemptions.
‘The policy of allowing insurers to treat their supplies of non-SIF pension fund management services as VAT-exempt insurance is to be discontinued. This policy change will apply from 1 April 2019,’ the HMRC paper said.
It is not clear yet if other insured Sipps will take James Hay’s view on the HMRC paper. HMRC VAT guidance still available online says insured Sipps have an exemption from VAT.
Although 20% VAT will now be applied to drawdown charges for the Sipp, James Hay is also reducing its drawdown charge from £154 to £125 from 1 April. James Hay will also be charging VAT for commercial property and certain investment charges.
A spokeswoman for James Hay said clients who use commercial property will be most affected by the changes.
‘Based on the way that our clients use our products, most will not be materially affected,’ the spokeswoman said.
‘This is because the charges we make for most of the work we undertake remain exempt from VAT and because we are reducing our standard drawdown charge. Clients that are invested in commercial property will be most impacted.
‘We started informing advisers and their clients of these changes last month.’