Taxbriefs Commentary Library

Platforms, rebates and tax

John Housden, 03 May 2013


HMRC has announced its view on tax and platform rebates.

HMRC issued Revenue and Customs Brief 04/13 explaining its view on the tax treatment of ‘trail commission’ along with draft guidance and a Technical Note On 25 March 2013. The HMRC stance came as something of a surprise for all those who thought that the issue of rebated commission had been put to bed in 1997 by the issue of the still extant Statement of Practice SP4/97.

HMRC said that it “has no record that the tax position of [trail commission] payments made to investors by intermediaries to investors had ever been considered by it” and that it had therefore “to consider the fundamental nature of such payments”. Its conclusions were that “payments of (or in lieu of) trail commission to an investor are income in the hands of the investor and taxable as an annual payment”. Their treatment of annual payments means that basic rate tax has to be deducted by the payer (normally the platform).

In what may be politely judged as an understatement, the brief says, “HMRC has not identified and challenged this approach in the past and may possibly have given unclear advice to some payers. Therefore a practice of non-taxation of these payments in the hands of investors has developed.”

HMRC argues that trail payments are not within the ambit of SP4/97 because paragraph 5 of the SP says, “where inducements or rewards offered to customers take the form of a series of payments (and are not simply capital sums calculated in advance but paid in instalments) they may be taxable as income in the recipients' hands”. This stretches credulity somewhat, not least because SP4/97 talks only in terms of ‘commission’, with no differentiation between initial and renewal.

The uncertainty of previous advice and the small amounts of most payments allow HMRC to say it “would not be justified in seeking to collect tax for earlier years”. However, HMRC says that from 6 April 2013 any payment made is taxable and thus, more awkwardly, basic rate is deductible. Payment in the guise of additional units/shares does not avoid the problem. HMRC says this would still be an annual payment and the payer would need to account for basic rate on the grossed up value of the additional units/shares. For tax due up to the end of calendar year 2013, HMRC will accept an approximation from payers, “providing that this is as accurate as reasonably possible”.

There are some escape routes. Rebates “arising in an ISA account” are not taxable according to HMRC, even though the ISA regulations do not explicitly exclude annual payments from tax. Such payments also do not count towards the ISA contribution ceiling if they are reinvested in the ISA, “provided that the payments never leave the control of the ISA manager”. Similarly payments of trail commission made to a SIPP and reinvested within the SIPP without leaving the control of the SIPP trustee/administrator will not count as withdrawals or as new contributions.

This move has already prompted a rush towards clean price funds – both Skandia and Standard Life have already confirmed that they will make the change

This article appeared in the April edition of Financial Timesaver - the monthly digital newsletter for the busy financial adviser. Click here to subscribe today.



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John Housden

Editorial Consultant

John Housden is a qualified actuary who has worked in the personal financial services industry for 40 years.

A former technical director for a life company and longstanding contributor to a wide variety of Taxbriefs publications.


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