Issues surrounding the availability and accuracy of Excess Reportable Income (ERI) data can result in investors being fined by up to 200% of the tax due, as well as interest and potential late payment penalties.
This is according to Financial Software Limited (FSL), who commissioned the Lang Cat to compile a white paper titled ‘Excess Reportable Income: Borrowed Time’.
This issue is heightened as platforms are not legally obliged to report on ERI, meaning many do not. It is also not the responsibility of the adviser.
For the paper, which was published today (16 November), the Lang Cat spoke to a number of platforms, advisers, and discretionary fund managers.
The white paper stated that “adviser appetite for managed portfolio service (MPS) solutions at an all-time high” has led to more investors holding in an offshore reporting fund.
Investors must report ERI to HMRC when the fund is held within a general investment account.
The white paper found that 93% of investment platforms offer offshore funds, but only 52% offer ERI reporting as part of their tax packs used by accountants and investors.
Also, certain adviser firms will not touch platforms that cannot provide good ERI data.
Investment funds are not required to provide its tax position in a centralised way, and so ERI data is not always accessible on its website – or it may not be up to date.
However, there are many adviser firms that use platforms that does not offer ERI reporting.
Alternatively, some use a mix of platforms with varying degrees of ERI information.
These advisers often have to resort to manual processes to gather information, “which is a huge drain on resources, especially for smaller firms”.
HMRC has a growing focus on this matter.
It sent out almost 24,000 ‘nudge’ letters in 2022/23 tax year, an increase of 31% on the previous year.
HMRC has also recovered £526m in tax receipts from offshore initiatives since 2019.
FSL managing director Michael Edwards said: “We want to raise the profile of ERI reporting, the risks, and potential ramifications for investors. In our experience platforms want to help, but it’s often not that easy.”
Lang Cat founder Mark Polson said: “For all the innovation that goes on in our sector, the exchange of data between parties is often at odds with the standards we’d all expect.”
