Hargreaves Lansdown has revealed HM Revenue & Customs (HMRC) is appealing the ruling of a tax tribunal, which ruled in favour of the platform giant for rewarding loyal clients with a 'discount' tax, and could lead to £15m in charges being returned to 150,000 investors.
In March, Hargreaves Lansdown announced it had won a 'discount tax' challenge against HMRC after it introduced 'loyalty bonuses' - discount provided against the ongoing management charges - for clients over 15 years ago but in April 2013 the rebates were deemed taxable by HMRC.
In September 2013, Hargreaves Lansdown launched a legal challenge to this rule calling it an "unwarranted attack on private investors".
The firm took the case to the tax tribunal and it was ruled that loyalty bonuses are not taxable.
As a result, £15m could potentially be returned to investors, and, in addition, there is now no need to declare these discounts on tax returns, simplifying investors' tax affairs.
However, HMRC are appealing the decision, which is expected to last until the first half of 2019.
Chris Hill, chief executive of Hargreaves Lansdown, said: "Following the decision by the first tier tax tribunal in our favour, we see no reason why we would not be successful at appeal. The process is likely to complete in the first half of 2019 and a successful outcome will see millions returns to clients, as well as a simplification of their tax affairs.'
"The ‘discount tax' has always been an unnecessary and unwarranted attack on private investors."
Following March's ruling, Hargreaves Lansdown said it would continue to pay loyalty bonuses to clients and that these are paid after the deduction of a 20% provision for the discount tax.
This is held in part by both HMRC and Hargreaves Lansdown in order to avoid high unexpected tax bills for clients. Investors were advised to include loyalty bonuses as income on their tax returns.
If the appeal is unsuccessful, Hargreaves Lansdown would return the amount withheld on payments of loyalty bonuses back to clients and cease deducting the 20% provision from future loyalty bonuses.
This could lead to £15m being returned to 150,000 investors in annual management charges.
Those clients who have already completed a tax return will be able to amend this and seek repayment of any higher rate tax which has been paid to HMRC.
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