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HMRC’s cash-back tax sets ‘worrying precedent’

Joanna Faith
Written By:
Joanna Faith
Posted:
Updated:
26/03/2013

HMRC’s decision to tax ‘loyalty bonuses’ made to investors by fund groups from next week sets a dangerous precedent which could spread to other cash-back schemes, experts have warned.

The tax authorities confirmed yesterday that the ‘Discount Tax’ will apply to cash-back or loyalty bonuses made to investors by fund managers, fund platforms or advisers from 6 April 2013.

However, Ian Gorham, chief executive of fund supermarket Hargreaves Lansdown, condemned the proposals calling the introduction of a Discount Tax ‘anti-competitive’.

“Loyalty bonuses and cash back offers are common practice across many industries in the UK. The Government may have set a precedent in taxing such loyalty schemes and savvy shoppers could well be next with multi-buys, cash back credit cards and cash back websites all possible targets in the future,” he said.

“The discount tax is not good news for investors, businesses or the Government and joins the likes of other unpopular taxes such as the granny tax or pasty tax.”

Andy Oldham, managing director of cash-back site Quidco, said savers  need as much support as possible during the continued financial downturn.

“At such a challenging time, HMRC needs to encourage and reward conscientious spending behaviours. Taxing cashback amounts saved by making purchases through money saving sites such as Quidco would be a step too far in Britain’s belt-tightening exercise.”

HMRC ruled that the payments made to investors were, in tax terms, ‘annual payments’ and therefore subject to income tax. As a result, higher rate tax payers will have to account for additional tax payments via self-assessment.

Ben Yearsley, head of investment research at Charles Stanley Direct said: “The simplest option for investors is to invest in clean units now, paying explicit platform fees on top. Not only will the client’s annual costs be lower and performance boosted, but there is no tax implication or bill either.”

HMRC said both unit and cash rebates will be subject to taxation from 6 April this year which came unexpectedly as both fund groups and fund platforms had expected a further year before their introduction.

Read our guide on ‘clean funds’ here.