Some new businesses choose to register for VAT, and others don’t. Sometimes that can be a matter of choice (until the £83,000 turnover threshold is hit, of course, after which everyone (or rather, most people) will need to be registered. But for some it isn’t something that they need to worry about because they are exempt. Financial intermediaries are some of these people.
A financial intermediary is the entity that acts as a ‘middleman’ between the two sides of a financial transaction. These can be banks (ie one person pays money to a bank, and the bank then pays that money to someone else), pension funds, or even individuals. They move funds from one place to another. And it is these individuals who can sometimes be exempt from needing to register for VAT, even if they are making over £83,000 a year.
In order to be exempt, the financial intermediary must satisfy a number of criteria. The first is that in their work they must bring someone who is looking for a financial service together with that financial service. They must also remain as the person between the two, overseeing the transaction (that is, they can’t just let the two parties get on with it by themselves). Finally, they must work towards the completion of the contract for this financial work.
If a financial intermediary does not meet just one of these standards, they will need to pay VAT at the usual rate. So, if an intermediary were to simply recommend a mortgage provider to someone who was looking for a mortgage, and then steps back, their commission would be subject to VAT. If, however, they set the terms of the contract, or work as a representative of their customer, they will be VAT exempt.