In HMRC v Hargreaves Lansdown [2019] UKUT 246 the Upper Tribunal held that loyalty bonuses were annual payments and should have had tax deducted at source.

Hargreaves Lansdown Asset Management (HLAM) negotiated lower Annual Management Charges (AMCs) with investment providers on behalf of their clients.

The First Tier Tribunal (FTT)  allowed the appeal by HLAM despite agreeing that 3 out of 4 necessary characteristics for a payment to be an annual payment were present; the tribunal said the payments did not represent pure income profit, they were a way of reducing the investors’ costs via the AMC, so were not annual payments.

HMRC appealed to the Upper tribunal who, after undertaking a full analysis of the relevant contracts between HLAM and their investors, reversed the FTT decision:

The payments were found to be annual payments which should have had basic rate tax deducted at source.

Comment

This is consistent with how bank account reward payments are treated where they are paid on bank accounts which are not subject to fees but, as the FTT judge pointed out, is different to how HMRC treat credit card cashback, which is not held to be an annual payment. HMRC’s reasoning for this is that credit card cashback is contingent on the taxpayer having previously charged amounts to their credit card.

Links to our guides:

Bank Account reward and cashback payments
Interest: paid to directors and individuals

External links:

HMRC v Hargreaves Lansdown [2019] UKUT 246