Advisers could be held responsible for deducting the income tax owed to HM Revenue & Customs from platform rebates to clients under the rushed-through rules published just last week and that come into force on Saturday (6 April), James Hay Partnership has warned.
HMRC published fresh guidance on 25 March that stated investors should pay income tax on any cash or fund units they receive as rebates.
Any rebates handed to consumers from April 6 are annual payments and therefore count towards taxable income, HMRC said. Historically investors have not declared their rebates as taxable income.
However, James Hay has warned that the onus for deducting tax and reporting to HMRC could fall onto advisers rather than the platform or provider in cases where they hold the agreement with clients relating to rebates.
Neil MacGillivray, head of technical support unit at James Hay Partnership, said there is “no doubt” the FSA consultative paper CP12/12 has been the catalyst for this change in stance by HMRC.
He echoed previous sentiment that the new ruling would likely lead to “a quick rethink by many providers and a speedy move to clean funds for all wrappers”, but said the “biggest issue” for advisers might be the obligations for deducting and reporting.
He said: “The biggest issue for advisers is noted in the detail of the papers and not contained in the bulletin. This refers to the fact that advisers could find themselves responsible for the deducting of tax and reporting of this if they hold the agreement with the client on the rebating of commission.
“This agreement is typically between the investor and the fund platform, although it can be as a result of an agreement between the investor and their adviser.”
According to Mr MacGillivray, systems will need to be amended to allow the deduction of basic rate income tax from payments but they have accepted that this may not be possible with a two week deadline.
He said: “Rather than delaying implementation, HMRC has agreed to accept an approximation of the tax deducted at source up to the end of the calendar year 2013 providing that this is as accurate as reasonably possible and that the payer makes arrangements to update their systems by the end of 2013.”
