The FSA has indicated that it views packagers as out-sourced processors of mortgage cases who work on behalf of either the lender or the intermediary.
If a packager works on behalf of an intermediary it is considered to be an integral part of the sales process and is not VAT liable. However, if a packager is considered to be providing a materially outsourced service for a lender then it could become liable for a 17.5 per cent VAT charge.
Lenders including Kensington Mortgages, Mortgages plc, Platform and SPML are considering paying pure packagers a separate fee from the procuration fee paid to the broker. This would help them simplify disclosure of payments on Key Facts Illustrations (KFIs).
Guy Batchelor, sales and marketing director for Britannia’s intermediary lender Platform, said: “We would prefer the payments to be separate and are currently investigating the implications for both ourselves and our packager partners if we do this.”
Peter Beaumont, sales and marketing director for Mortgages plc, said it had not yet taken a formal decision over the issue but that increased monitoring of packagers was part of a new contract that was being drawn up. “For our elite partners we will still be making only one payment, however for smaller pure packagers we are considering making separate payments,” he explained.
Beaumont believed it was still unclear whether two payments would result in VAT liability for packagers. However, he said lenders would not absorb the burden if VAT was charged.
John Maltby, chief executive of Kensington Mortgages, said: “This is a route we are considering very carefully. It is my expectation that the industry will move towards separate payments.”
Chris Cummings, director of AMI, commented: “If the FSA’s view of the world is that packagers are a materially outsourced business then that will be the reality for packagers and they could become liable for VAT.”
