Hargreaves Lansdown Investors Stand to Receive £15 million from HMRC

Hargreaves Lansdown investors are set to receive a slice of the £15 million tax rebate if the investment company wins the next stage of the case against HM Revenue and Customs (HMRC).

Hargreaves had launched a case against HMRC in 2013 after its loyalty bonuses were deemed to be taxable. The loyalty bonuses that were introduced about 15 years ago passed discounts from fund managers that the company negotiated for its customers.

Until 2013, Hargreaves had paid loyalty bonuses free of tax to investors. However, HMRC had changed the tax rules regarding fund discounts due to which investors had to declare bonuses on their tax returns. They had to pay taxes on all bonuses other than on accounts that fall within a tax rapper such as self-invested personal pension (SIPP) and individual savings account. This according to Hargreaves was an unwarranted attack on private investors.

After changes in the tax rules, Hargreaves withheld 20 percent of bonuses paid to investors. This was done to avoid the prospect of its customer having to pay unexpected tax bills in case it didn’t win the case.

Hargreaves Wins the Case; HMRC Makes an Appeal

The tax tribunal ruled in favour of the FTSE 100 broker in March this year stating that the loyalty bonuses should not be taxed. The bonuses are a way to reduce investors’ cost instead of a profit. Around 150,000 investors stand to benefit from the pay-out that amounts to around £100 per investor.

However, HMRC appealed against the ruling at a tax tribunal, which is expected to run until the first half of 2019. The outcome of the appeal is expected to impact investors who received loyalty bonuses from Hargreaves and other fund platforms.

According to a spokesperson of HMRC, the decision made by the first-tier tribunal was disappointing and therefore an appeal was lodged. The current tax rules will be applicable until the litigation is complete.

The HMRC’s appeal against the ruling means that the celebration will be put on hold until the final verdict is given next year. Until that time, any bonuses paid to investors will still be potentially taxed. As a result, investors will have to wait until the tribunal gives ruling in their favour to receive any payout.

In case the appeal is rejected, investors will receive £15 million in annual management charges. Those who have already completed the tax return will be able to seek repayment of higher tax rates paid to HMRC.

This could be a big blow for HMRC as they already lost an IR35 case against a contractor (Jensal Software Ltd) recently.