Interest Rate Hedging Products Redress Payments

Interest Rate Hedging Products Redress Payments

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I have a new client who has been in receipt of a substantial (many hundred of thousands) payment from their bank.

Further investigation has revealed that this was a payment in relation to an Interest Rate Hedging Product.

The sum received comprises two elements interest (which has had tax deducted) and a refund of past IRHP payments.

I have read HMRC guidance in relation to these payments which says they are taxable on the basis that tax relief would have been claimed previously on the actual payments made.

I would agree that this was the case for a company however my client is a sole trader and I have seen no evidence that tax relief has previously been claimed on these premiums from the limited information provided by the previous agent.

It did take many weeks to get the handover information from the previous agent and despite an urgent request to clarify their treatment of the premiums paid I do not expect to receive a reply before the tax return needs to be submitted.

My intention is to make a disclosure of the sums received on the tax return but to indicate that it is our belief that the redress payment (excluding the interest) is not taxable.

What do you think?

Replies (4)

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By MBK
22nd Jan 2015 13:11

It's true to say that...

.... if the IRHP payments originally made (which are essentially additional interest) were not a tax deductible business expense then the reimbursement won't be either.

So you need to understand what the purpose of the loan was originally. If the loan was for a deductible purpose but just not claimed then the problem you have is that the redress payment from the bank is taxable and you then have to look to correct previous accounts - which may be out of time.

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By User deleted
22nd Jan 2015 15:18

I have had one of these drop on me this week ...

... and the deal with set up with the accountants prior to the one I took over from!

These are big sums and I am trying to get confirmation that the relief was actually claimed in the first place - the deal was set up in 2006! I am not convinced it was at present.

In this case the loan was for a commercial property which is rented out but my predecessor only claimed loan interest against rents received - client currently going back to previous accountants to see what they know, or at least give them permission to talk to me!

Will update if I find anything out, could you do likewise as this is my first one of these.

 

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PJ
By paulgrca.net
23rd Jan 2015 13:11

Thanks Old Greying accountant

Sounds as though we have the same predicament.

Premium on my client's policy was £15k per quarter so should stand out on the accounts prepared by the previous agent. A review of the accounts shows it's not on the P + L account unless they have done something really stupid and posted to purchases. So have they posted to drawings - probably not given figure reported in the statements.

 

Requested clarification from the previous agent but am not really hopeful of getting an answer given the length of time it took to get very basic handover information which is still incomplete . 

 

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By lewis3199
23rd Jan 2015 15:17

on a related but separate issue.....

.......where can a template (or guidance) for a consequential loss claim be obtained?

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