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Trail commission passed on to investors is taxable, says HMRC

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Trail commission paid to or for the benefit of an investor in a collective investment scheme, insurance policy or other investment product is taxable as an annual payment within ITTOIA 200 s 683 but ‘a practice of non-taxation’ of the payments has developed, HMRC said in Revenue & Customs Brief 04/13.

Payers are obliged to deduct basic rate income tax and account for the tax to HMRC, while investors should account for any higher or additional higher rate tax due through their self-assessment tax return, it said, noting that this was contrary to the view generally taken by the industry.

However, HMRC has not identified and challenged the general approach in the past and may possibly have given unclear advice to some payers, it added. A technical note for tax professionals indicated that HMRC had never considered the tax position of payments made by intermediaries to investors.

‘Taking the above into account and the small amounts of typical individual payments HMRC has reached the conclusion that they would not be justified in seeking to collect tax for earlier years from either the payers who should have deducted tax at source from the payments or investors who should have declared any higher or additional rate liability in past year’s tax returns, where they have not already done so,’ it said.

The Brief sets out HMRC’s view of the tax position for payments relating to ISAs and SIPPs, and provides guidance on the treatment of future payments.