Wrap provider Transact is set to launch a system to automatically calculate exactly how much tax a client will owe on rebates, in light of the announcement by HM Revenue and Customs that all rebates will now be taxed as income.
Although HMRC will allow wraps initially to estimate how much tax is payable on rebates and then make any necessary adjustments in retrospect, Transact’s new automated system will give exact figures from launch, the firm told FTAdviser.
Malcolm Murray, marketing director at Transact, said the new system would launch in the next two weeks, adding that the firm had been able to respond so quickly because it owns the company that writes its software.
HMRC’s ruling gave just two weeks lead time on the changes, following an initial announcement at the end of March. The rules come into effect on Saturday (6 April).
He said: “In the first place we are liable for the tax. The payer of the rebate is liable for the tax. Advisers who use us will be assured that their client will have the correct accounting done for them.
“Those liable for the tax can estimate it at the start. Rather than estimate it, we wanted a system that administered it.”
James Hay Partnership warned earlier this week (2 April) that advisers might be held responsible for deducting the income tax owed from platform rebates, if they held the agreements with clients in relation to rebates.
Several industry commentators have suggested that the changes will effectively put an end to the use of unit rebates.
A number of platforms, including unit rebate champion Skandia and Standard Life, have said in the wake of the ruling that they will review their models and would fund groups to provide bespoke share classes for clients of their platforms.
However, the claims prompted a reaction from three major wrap providers, including Transact themselves, saying they believe fund providers were already “running scared” of striking deals with specific platforms for fear of alienating other distributors.
Bill Vasilieff, chief executive of Novia, said: “What will happen if one platform negotiates a different price? Other platforms which don’t get this price will just promote other things and fund managers will end up shooting themselves in the foot. They will alienate other platforms.”
