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When does a mortgage broker need to register for VAT?
A lady is an independent mortgage advisor; when does she need to register for VAT?
Her turnover is above £85,000 and all her income is either commission, which is paid by UK lenders, or flat fees received from customers seeking a mortgage.
In the last 12 months, £75,000 of her turnover was derived from helping people seeking a mortgage. She is finding the right product for them based on their finances and helping with submitting applications.
The remaining £14,000 is earned by directing customers to specific lenders. She gets a small commission from the provider if the customer takes out a mortgage with them.
Does she need to register for VAT?
If you are bringing together a person who is seeking a financial service with someone who is providing a financial service, you may be able to treat the income arising from this as VAT exempt. Exempt supplies are not included in your taxable turnover when looking at VAT registration.
Financial intermediaries can treat their supplies as VAT exempt if they can meet the following criteria as per VAT Notice 701/49 sec 9.1:
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
When acting as an intermediary for arranging the sale of securities (such as shares, bonds, loan notes or debentures), no preparatory work needs to be undertaken.
The last point talks about preparatory work in relation to the completion of a contract. This means the mortgage advisor needs to take an active role in making representations on behalf of the customer or help the customer to fill in/check/submit forms and applications or help set the terms of the contract. You can read more information about this point here from HMRC.
For the larger part of the turnover if the mortgage broker can meet the criteria above, she can treat that turnover as VAT exempt. The income from merely referring a customer to a lender will be a standard rated supply as there will no preparatory work conducted.
In this scenario her taxable turnover stands at £14,000 for the year and the remainder is all exempt as a financial intermediary, therefore there is no requirement for her to register for VAT; she only needs to do so once her taxable turnover exceeds £85,000.
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