The guidance states that VAT will not be payable if the customer is seeking a financial product to be arranged.

HMRC quoted the six-stage process and said when the adviser “acts between the product provider and the customer with a view to arranging the sale of the retail investment product agreed with the customer” and is able to evidence this has been done, the service in stages one to six will be VAT exempt.

This will be the case regardless of whether a sale of the product is completed.

HMRC said: “An adviser will need to keep sufficient evidence to support the tax treatment applied to the services supplied. This evidence will need to be specific to the services performed for the customer and demonstrate the adviser acted between the customer and the product provider with a view to arranging the sale of retail investment products.”

If the procedure is not documented or that stage of the process is not completed or completed by someone else, the service will be subject to VAT.

Any service provided to the customer which is general advice or recommendation only is similarly subject to VAT.

HMRC said the VAT liability depended on what was done by the adviser and not whether a fee was levied up front or over the life of a product such as for a product with regular contributions.

The rules do not apply to those who carry out investment management under a discretionary mandate or execution-only transactions.