Loyalty bonus payments are subject to tax

Hargreaves Lansdown offers a platform for the distribution to investors of various products offered by different fund providers. It also provides administration services to investors.

In 2013 HMRC announced that from April financial intermediaries making specified payments to investors should deduct basic rate tax at source. Hargreaves Lansdown considered that this did not apply to the loyalty bonuses it paid to investors because these were a discount against management charges.

However on the basis that the matter would proceed to the tribunals it retained an amount equal to the basic rate of income tax on the bonuses and HMRC assessed it under ITA 2007 s 957. Hargreaves Lansdown appealed.

The First-tier Tribunal held that the loyalty bonuses were payable under a legal obligation and were recurrent or capable of recurrence. But it concluded that the payments did not represent pure income profit so the payments were not annual payments....