HM Revenue & Customs has no rules in place to allow consultancy charges to be deducted without an unauthorised payment charge being levied it has emerged.
The Revenue is reported to be in the process of rewriting its consultancy charging guidelines to fill the vacuum in the rules, but some advisers fear there are no guarantees any new rules will be written in a way that will allow the implementation of consultancy charging structures as envisaged.
The confusion centres around the definition of ‘scheme adviser member payments’, which sets out which payments are permitted out of pension schemes without attracting an unauthorised payment charge. HMRC guidance exists for scheme adviser member payments permitted under adviser charging, where individual advice is given to retail clients. But it has published no such guidance for consultancy charging.
The adviser charging guidance (below) only permits charges to be deducted without an unauthorised payment charge for financial advice relating specifically to the pension being advised on. Advice on other products and implementation expenses are excluded. Robert Reid, director of Syndaxi Financial Planning believes this could make it impossible for corporate IFAs and employee benefits consultancies to deduct consultancy charges if the rules for group schemes are written in the same way as the adviser charging rules.
The ABI says it is in discussions with HMRC over the issue.
Reid says: “Consultancy charging is stymied by unauthorised payments, because the rules say only pure advice specific to the pension in question can be included. The problem for the EBCs is that this opens up a wider discussion in a field where charges are being used to pay for the costs of education or the employer’s costs. Even advice on a corporate Isa would not be covered by the rules as written for adviser charging. The ABI thought they could get HMRC to change the position for investment bonds, but it failed, so there is no guarantee they will succeed with this one.”
John Lawson, head of pensions strategy at Standard Life says: “We need a new in depth discussion with HMRC on this, so we can sort out before the RDR comes in what they actually think is fair. ‘Scheme adviser member payment’ could cover whatever they are happy for it to cover, but we need to sit down with them work out what that is.
“I do not see why implementation should be taken out of the process. The Revenue is at risk of getting itself tied up in knots if it takes such a strict line on implementation because advisers do not divide up their costings between advice and implementation.”
A HMRC spokesman says: “The guidance in the registered pension scheme manual is being updated and will be published in due course.”
HMRC Technical Pages – Adviser charging guidance
The management fees for a registered pension scheme might be structured in such a way that the fees meet separately identifiable costs. One such cost under this sort of management fee structure might be the member’s costs for pension advice that is given to the member by a financial adviser in relation to the pension scheme. This might be advice in connection with the suitability of fund choice, asset allocation, pension provider, pension taxation or checking against statutory limits. The payment of management fees to meet such financial advice costs would not be an unauthorised member payment provided the management fees are paid as a result of genuinely commercial remuneration arrangements between the member and financial adviser for the pension advice given by the adviser and the agreed amount of remuneration for the adviser is commensurate with the advice given.
The payment of management fees to meet the member’s costs for financial advice would create unauthorised member payments if those costs are not genuinely commercial or if the costs were not just for pension advice as the costs covered wider, or other, financial advice. For example, costs for advice about retirement income in relation to Isas or property would not be covered. Nor would costs for implementation fees be covered within any pension advice. For example, as part of giving pension advice, an adviser recommends a client to switch from one fund to another within a pension scheme. The adviser then implements the recommendation on behalf of the member by arranging for the funds to be switched and the adviser charges the client for undertaking that implementation work.