The operating system for introducer-led growth

Are referral commissions taxable for accountancy firms?

Category: Compliance

Yes. Referral commissions and introducer fees received by your firm are taxable income and must be declared in your firm's accounts. This applies regardless of whether the fee is a one-off payment or an ongoing trail commission. For partnerships and LLPs, the income forms part of the firm's trading profits and is allocated to partners in the usual way. For limited companies, it is included in the company's corporation tax return. VAT treatment depends on the nature of the service. A simple introduction — where you pass on a client's details without providing advice — is generally an exempt supply for VAT purposes, as it falls within the exemption for financial intermediation services. However, if the introduction includes an element of advice, or if you are acting as an appointed representative of the receiving firm, the VAT position may differ. HMRC's guidance on this area can be complex, and the treatment may vary depending on the specific arrangement. It is worth taking advice on the VAT position of your referral fees, particularly if the amounts are significant. From a compliance perspective, ICAEW expects member firms to account for referral income properly. Failure to declare referral fees could create issues not only with HMRC but also during ICAEW monitoring reviews, where inspectors may ask to see how fees are recorded and reported. The practical advice is straightforward: treat referral fees as any other income, declare them, and keep clear records of amounts received, from whom, and in relation to which client referrals.