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Hargreaves asks QC to probe HMRC tax rebate ruling

by Jun Merrett on Apr 25, 2013 at 14:09

Hargreaves asks QC to probe HMRC tax rebate ruling

Execution-only service platform Hargreaves Lansdown has sought legal advice on whether to challenge HM Revenue & Customs (HMRC) decision to tax rebates.

In March, HMRC ruled that rebates constituted annual payments and so were subject to income tax, which it began levying from 6 April.

Ian Gorham, chief executive of Hargreaves Lansdown, said the firm had asked a QC to review the ruling. He said Hargreaves wanted to know whether the ‘loyalty bonus’ it pays clients out of rebates would be caught by the rule because it was paid on a discretionary basis and so, arguably, was not an annual payment.

He said the company would also look at whether there was a case for the platform industry to fight the ruling, something it would talk to other platform providers about.

‘The issue falls into two: whether it’s challengeable from a platform industry perspective, or whether the Hargreaves Lansdown way of doing it is challengeable, or both,’ he said. ‘We think any discount should be free of tax because it is a return of money clients would have otherwise paid in charges, so effectively it’s [clients] own money. We can’t see how it’s particularly different to Tesco Clubcard, so we think it’s worth a challenge.

‘We’ll see if our QC’s advice applies to the wider platform world, and have a think about how to go on from there.’

Gorham said any legal process would take one or two years, and Hargreaves would collect tax for HMRC in the meantime, but refund clients any reclaimed tax in the future.

5 comments so far. Why not have your say?

Jonathan Kirby

Apr 25, 2013 at 15:17

I got quite excited until I saw the last paragraph!

One or two years, no wonder lawyers are so rich!!!

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Apr 25, 2013 at 15:28

Well done HL. They could have just sat on their hands.

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Stanley Kirk

Apr 25, 2013 at 16:29

Well done HL. The precise tax position of any payment will depend on the exact words used in the contract, in this case the rebate agreements between the fund manager and the platform and the platform and the client. These can and do vary enormously across the industry. I have seen those where what is described is basically enhanced trail commission. These deserve to fail and tax could even be restrospective. I have also seen other agreements where clearly great care has been taken to articulate a rebate from AMC which does not seem to fall within the 'annual payments' definition, wide though this is. It is plain wrong to treat all as equally guilty which is what the HMRC ruling seems to imply. It is equally wrong for HMRC to say they are happy with payments of estimated tax in the interim before accurate systems can be implemented since accounting for client money requires exact calculation and authority from the client to make such deductions - most platforms agreements don't allow this deduction and will require amendment.

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Simon Kershaw

Apr 25, 2013 at 19:22

The Prudential has for many years clearly spelled out discounted commission deals on onshore bonds as a monetary payment from the IFA to the clients policy. My understanding of this had always been that this was a tax neutral exercise.

Anybody care to help assuage my fear that HMRC are suddenly discovering that taking money with menaces is easy?

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Smithling via mobile

Apr 26, 2013 at 10:57

The country needs money. There's the polite way of doing it and the less polite way of doing it. Either way they'll get it.

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