HMRC to tax your Quidco cashback?March 26th, 2013 • 5 Comments
Everyone knows the insurance industry is the worst kind of old boys club. Well, perhaps not the worst kind. Still, the fact that financial advisers can be sunning themselves on a cruise paid for on the back of advice given 20 years ago is why the whole financial services regime is currently undergoing a ‘reform’ to make it more transparent for everyone involved, with such ‘trail commission’ payments expected to be banned from 2014.
Now, HMRC have decided to get in on the act, with a new ruling that any such commissions that are thrown back to consumers will, from April onwards, be taxable. Earlier years’ bonuses will not be taxed. The insurance industry are perturbed by this new announcement, but are trying to spread the bad news by insinuating they are merely the first step on an HMRC cashback rampage.
The payments in question are basically repeat commission paid annually on longer term insurance-type investments. If you purchased the product with the help of a financial adviser, you can rest assured that he has been enjoying the benefit of the annual charge-back ever since you took it out. However, if you did not have an adviser, or in certain other circumstances, the investment product provider or broker will get the bung instead. Such firms are under no obligation to show you a penny of this free commission, but some do, notably Hargreaves Lansdowne who repay 16% of any commission received to its investors as a ‘bonus’. It is this cash payment returned to customers, either by way of an account credit or set off against management fees that HMRC have now ruled as chargeable. As far as they are concerned, it is an income generated by your investment, so unless it’s in a tax-free wrapper like a Stocks ISA or a SIPP, it’s fair game.
Hargreaves Lansdown, who is the largest bonus re-bunger, is understandably unimpressed. “It seems the Government is now seeking to tax small savers and investors. This is effectively a second tax on their income,” grumbled chief executive Ian Gorham.
However, he didn’t stop there, complaining to the Telegraph that it wasn’t just sour grapes, he was merely concerned that “the government may have set a precedent in taxing such loyalty schemes and savvy shoppers could well be next with Multi-buys, cashback credit cards and cashback websites all possible targets in the future.”
So should we all be worried about our clubcard balances? Is the taxman going to be making honey out of your Nectar card? Should you start declaring your Quidco and TopCashback earnings on your tax return? Apparently not. HMRC are reported to have dismissed these claims as “complete rubbish”, and the taxing of additional income on an investment product (i.e. designed to make the holder money) does seem to be entirely different from earning 20p from buying a kettle at Argos.
Still, you can never say never with HMRC, and perhaps the good folks at Hargreaves Lansdown have just given them a great idea for next year’s Budget…
Obviously Sam doesn’t like the idea of repeat commission but what do you think will happen if it goes? If this is their only souce of income then they will need to make their money another way so the IFA will have to charge you an upfront fee to do work rather than doing it for “free”.
Do you really want to have to pay an IFA or broker to find you a mortgage, ISA, insurance policy?
Yes you might expect that the price of your mortgage etc might come down because the provider doesn’t have to pay these fees any more, but does anyone believe that will really happen?
All that will happen is you will have an additional expense for consumers, not sure why a consumer blog would be so happy for this and so opposed to commission payments?
Oh Grammar Nazi, I think that you’ll find the word to be “Source”.
“If this is their only souce of income ”
So let’s say I earned a ‘considerable sum’ in the 2012-2013 tax year from TopCashBack, should I declare this? I was going to as my boss has scared me into doing it, but after reading this I don’t know if I should bother.
I always find it rather funny when BW says those magic words: “quidco” and “tax” in near proximity.
Lest we forget about HUKD and their tax dodging…
I’m just waiting for a mate…