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VAT on fee paid to a finance intermediary

Q: As an Estate Agent I aim to provide as comprehensive a service as possible to my clients who are looking to purchase properties. I have a contact who can arrange a mortgage for the purchasers concerned and for every client who secures their mortgage through my contact I receive a 1% commission of any fee he earns. After passing on their details, my contact liaises with the purchasers directly. What will be the VAT liability of this agency type service?

A: As the underlying supply, the mortgage, is of a financial nature there is a need to consider whether you can be classified as a “financial intermediary” and so can then exempt your supply under Group 5, Schedule 9 of the VAT Act 1994. One of the conditions that need to be satisfied to provide exempt financial intermediary services for mortgages is that work preparatory to the completion of the contract must also be provided. In this case, as you are only involved in introducing someone to a mortgage product/broker but do not undertake work preparatory to a contract then you cannot exempt your supplies as per para 9.1 to 9.3 of Notice 701/49 Finance. Therefore the commission received will be subject to VAT at the Standard Rate (currently 20%) of VAT.