Interactive Investor failing to deduct tax from VCT trail commission rebates

masonic

They've circulated a corporate action to affected individuals, excerpt below:

"VCT trail commission is usually an annual payment made by the VCT provider for a set percentage of your initial investment, that reoccurs for a set number of years. The VCT provider sends the payment to interactive investor with a breakdown of values for each individual, and upon receipt we apply this payment to your Trading account.

Following an internal review, we have deemed that in order to comply with HMRC guidance these payments should be treated as income for tax purposes, with the 20 percent basic rate of tax deducted.

As a result, we are taking retrospective action, deducting 20 percent tax in relation to each VCT trail commission payment applied during the current tax year. Your account has been debited today and you will see this reflected on the Transaction History section of your account with the narrative VCT TRAIL TAX followed by the date that the initial VCT trail commission payment was applied. Depending on your tax status you may be liable to pay more or less tax that the basic 20 percent rate that we have applied."

Which is a bit naughty, as it transpires HMRC clarified in 2013 that they consider trail commission rebates, either cash or units, to be taxable, and that payers should put in place arrangements to deduct basic rate tax. It doesn't end there, as:

"For VCT trail commission payments applied to your interactive investor account in previous tax years, we will be reviewing each tax year in turn and contacting clients accordingly."

So some of us can look forward to repeated contact having held VCTs at II for a number of years. If you don't have a sufficient credit balance:

"Should the tax debit have placed your account into a negative balance, no fees or interest will be charged for a period of 30 days. Please ensure that your account is funded or that shares are sold to clear the negative balance within that period."