I am not VAT registered. I am financial intermediary; my
turnover is about £100,000. I receive commission from mortgage providers for
introducing customers to them and I have heard that some intermediaries doing
the same type of work are VAT registered and are accounting for VAT at the
standard rate. Why is this?


In order for a supply of financial intermediary services to
be exempt the intermediary must:

1. bring
together a person seeking a financial service with a person who provides a
financial service;

2. stand
between the parties to a contract and act in an intermediary capacity, and

3. undertake
work preparatory to the completion of a contract for the provision of financial
services, whether or not it is completed (VAT Notice 701/49, section 9.1)

Most practitioners receiving commission from mortgage
lenders for introducing borrowers meet conditions i) and ii).

However, it is the final requirement to undertake work
preparatory to the completion of a contract that may not always be met, and if
it isn’t met, then the commission would be taxable and standard rated rather
than exempt.

For your client this means that it really depends on how
much work he is doing for the customer or lender. If your client just
recommends a mortgage provider to the customer and takes no further part, the
commission will be for a taxable supply and count as taxable turnover for VAT

If, however, your client is helping to set the terms of the
contract or make representations on behalf of a customer, then they are doing
work preparatory to the completion of a contract and so the commission is

It may be that your client acts differently depending on the
customer and so would be making both taxable and exempt supplies. If this is
the case your client only needs to VAT register if the taxable turnover exceeds