On 8 March 2018, the First-tier Tribunal20 held that so-called “loyalty bonuses” paid to investors by an investment platform service provider (Hargreaves Lansdown) were not “annual payments” subject to withholding of basic rate income tax.
Crucially, the Tribunal took the view that the loyalty bonuses did not represent “pure income profit” in the investor's hands. This is a key requirement in determining whether any payment is an “annual payment” subject to withholding. As the so-called loyalty bonus was, in fact, the passing on to investors of their share of the annual management charge rebated to Hargreaves Lansdown, it could not amount to “profit”. It was not the case that the investor received the payment without having to “do” anything. Rather, in the Tribunal's view, as the investor had to pay the management charge in the first place the effect of the payment of the rebate to the investor by way of a 'loyalty bonus' was to reduce their net cost.
This goes directly against HMRC's publically stated21 view of “trail commission”, and it therefore remains to be seen whether HMRC will appeal this decision.
The decision can be viewed here.