Does your business have an interest rate hedging product (IRHP) from the bank? A number of banks have mis-sold IRHPs and as a result, the Financial Conduct Authority (FCA) require the banks involved to make redress payments to the wronged businesses. The payments are now starting to come through, so if you’re concerned, it’s worth checking whether you’re entitled to one of these payments.
If you do receive an IRHP redress payment, it’ll be made up of:
- consequential losses and basic redress
- interest at 8%
The bank may deduct tax at 20% from the interest where it has paid out to an unincorporated business; you can find this declared in the bank’s documents. The interest received, (and any tax deductions) must be shown on your tax return.
If your initial IRHP payments were treated as trading deductions for your business, then the redress should be added to your accounts; this needs to be included for the period that the payment is received. If the redress is made in instalments, then each one also has to be recorded in the accounts for the full period they’re received.
If the original IRHP payments weren’t treated as taxable deductions (this may be the case if the product was treated as a ‘hedging asset’ for your company) the redress payment may be viewed as a ‘capital receipt’. We’ll be happy to discuss this further with you and advise on the correct accounting and tax treatment if you’d like us to.