Provision of leads and intermediary services

The FTT has held that the provision of services consisting of directing potential customers to an independent financial adviser (IFA) via a website amounts to the exempt supply of intermediation services within VATA 1994 Schedule 9 Group 5 item 5: Performance Leads Ltd v HMRC [2025] UKFTT 660. The FTT rejected arguments that Note 5 meant it was necessary for a person "bringing together" persons to also carry out "work preparatory to the conclusion of contracts".

In this case, the FTT was content that the website operated as a sufficient filter in directing potential customers to IFAs that it was not acting as a mere conduit, even if the filters in this case were merely aimed at ensuring that only monetisable leads were passed on to IFAs.

Background

Performance Leads Ltd (PL) is a company offering lead generation services to IFAs. It operated two websites through which it gathers information on potential customers seeking financial advice and provides that information to its customer IFAs with a view to putting them in touch with the potential client. It received a fee from IFAs for each distributed lead. The two websites were "Financial advisors near me" and "Pension advisers near me".

PL originally accounted for VAT on its supplies but later formed the view that its supplies were exempt supplies of intermediary services and sought to recover VAT accounted for. HMRC rejected the refund claim, broadly, on the basis that not all leads passed to IFAs would result in the supply of financial products and that, in any event, the level of data gathered by PPL was not enough to amount to "work preparatory to the conclusion of contracts" within the meaning of Note 5 to Group 5. PL appealed.

VATA 1994 Schedule 9 Group 5 Item 5 exempts the "provision intermediary services in relation to any transaction comprised in item 1, 2, 3, 4 or 6 (whether or not any such transaction is finally concluded) by a person acting in an intermediary capacity...".

In addition, Note 5 provides that "intermediary services" consist of bringing together, with a view to the provision of financial services (a) persons who are or may be seeking to receive financial services, and (b) persons who provide financial services, together with (in the case of financial services falling within item 1, 2, 3 or 4) the performance of work preparatory to the conclusion of contracts for the provision of those financial services, but do not include the supply of any market research, product design, advertising, promotional or similar services or the collection, collation and provision of information in connection with such activities.

FTT decision

The evidence before the FTT was that the websites in question asked a series of simple introductory questions to ascertain the nature of the financial advice required by the potential customer. In part, this was designed to separate out those who may have significant assets in need of an IFA and those with other financial issues but without financial assets who would not be referred on to an IFA. Essentially a potential customer with a monetisable interest would receive an email with details of an IFA who will contact them, with a counterpart email to the IFA advising them of the customer's details.

The FTT held that it was clear that PL's activities amounted to the provision of intermediary services by a person acting in an intermediary capacity. There was clearly a "bringing together" of persons looking for financial advice with those persons providing it. In addition, the FTT was content that PL was acting in an "intermediary capacity".

In this case, the FTT held that the relevant financial services fell within Item 6 (the issue, transfer or receipt of, or any dealing with, any security or secondary security...") rather than Items 1 to 4. "Given that the intermediary services are for financial services within Item 6, then this does not require the bringing together to be coupled with ("together with") the performance of work preparatory to the conclusion of contracts because "together with" applies only to financial services falling within Item 1, 2, 3 or 4." As such, HMRC's argument that PL's activities were not sufficient to meet the "work preparatory to the conclusion of contracts" condition was irrelevant.

However, the FTT also considered the position if it were wrong on that point and the financial services fell within Item 1. Even in that scenario, the FTT held that the "together with" requirement was not an additional requirement. It is not necessary that the "bringing together" be done "together with" "the performance of work preparatory to the conclusion of contracts". This point had been considered by the FTT in in Debt Management Associates Ltd (2002) VAT Decision 17880. The FTT in that case rejected that argument, holding that Note 5 is not to be read as if the bringing together of the parties and the conclusion of the contract are cumulative conditions. The words "together with" expand the scope of the exemption to include "work preparatory to the conclusion of contracts" in distinction to market research and the other descriptions of work which follow, which are excluded. This analysis was adopted and applied by the Tribunal in Friendly Loans [2009] UKFTT 247. Equally, it was held in that case that the legislation did not support a contention that negotiations, if they are to come within Item 5, must lead, if successful to a contract.

The FTT noted that the judge in Dollar Financial UK Ltd v HMRC [2016] UKFTT 598 had provided a succinct summary of the case law. This included the point that "intermediation does not include advertising or acting as a mere conduit".

In this case, it was clear that PL was not conducting market research, product design or promotional or similar services. It is not an advertiser and the websites are not advertisements in any conventional sense, as they do not promote to any named IFA. PL was simply introducing potential customers to IFAs. Nor was it acting as a "mere conduit" because it was assessing an enquirer's suitability for on referral. There was a meaningful sift which operated as a real filter. The sift was designed to filer potential monetisable leads from those which were not.

According to the FTT, PL was doing enough ("in our view, easily enough") to cross the line from being a mere conduit or advertiser into being an intermediary introducing persons to IFAs.

Comment

The decision is a useful reminder (especially to HMRC) of the principles around the application of Group 5 Item 5 and the scope of the exemption for intermediation. In particular, the reference to "together with" in Note 5 is not to be read as an additional requirement beyond the need for "bringing together" parties to a financial transaction. Instead, it extends the scope of the exemption to the performance of work preparatory to the conclusion of contracts.

It is also worth noting that the FTT was highly critical of HMRC's approach in this case. There had been earlier alternative dispute resolution (ADR) at which the "Record of outcome" prepared by HMRC noted that the joint position of the parties was that "the only legal point at issue in the dispute is the interpretation of the words "work preparatory to the conclusion of contracts" in Note 5" and that "The parties now agree that this is the only issue on which the dispute rests". Despite that, the FTT noted that HMRC had sought to argue the case on a much wider basis, including that PL did not "bring together" persons and PL had not shown that leads led to contracts. The FTT noted that such "ostensibly unheralded" expansion in HMRC's scope of challenge was undesirable and self-evidently not consonant with its Litigation and Settlement Strategy. The FTT noted that this led to questions over whether HMRC should be restricted to the point identified in the ADR. However, it had decided that arguments on this point had not been necessary in this case.

The FTT also noted that counsel for HMRC had in closing submissions sought to raise arguments that the IFA's services fell within Item 9 ("management of investment schemes") such that PL was not an intermediary providing services within the scope of Item 5. Since this argument had not been mentioned in the statement of case, skeleton argument and had not been raised in the conduct of the case or put to witnesses in cross-examination, the FTT chose to disregard this argument.