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Victims of missold interest rate hedging products (IRHPs) must declare compensation payments, HMRC have stressed.
Some taxpayers became entitled to redress payments following a review in light of failings identified by the Financial Conduct Authority in the way banks sold IRHPs to firms taking out business loans.
The bank calculates each payment based on analysis of the sales process. The figure comprise up to three elements: basic redress, compensatory interest and consequential losses.
Victims of missold interest rate hedging products (IRHPs) must declare compensation payments, HMRC have stressed.
Some taxpayers became entitled to redress payments following a review in light of failings identified by the Financial Conduct Authority in the way banks sold IRHPs to firms taking out business loans.
The bank calculates each payment based on analysis of the sales process. The figure comprise up to three elements: basic redress, compensatory interest and consequential losses.
Recipients must account for sums in their tax returns, the Revenue advised. The full amount is generally taxable on the basis the taxpayer business will have claimed relief for the payments as an allowable business deduction.
Redress ought to be treated as business income and reflected in accounts. The interest element is taxable in the year received and must be shown as loan relationship income, rather than as trading income.
A bank may deduct tax from a payment – depending on the recipient’s circumstances – which should be credited against tax paid for the year or accounting period in which the compensation is received.
