Money Covered: The Week That Was – 4 April 2025

Welcome to The Week That Was, a round-up of key events in the financial services sector over the last seven days.

The third episode of Season 4 of our podcast, Money Covered – The Month That Was, where the team discusses developments that we expect to see in 2025 in relation to Financial Services and Accountants is now available.

To listen to this and all previous episodes, please click here.

Headline Development

Supreme Court hears motor finance case

In the three cases known collectively as Johnson v FirstRand, the Court of Appeal found it unlawful for car dealers, acting as credit brokers, to receive a commission from the lender without obtaining the customer’s informed consent, on the basis that finance brokers in these circumstances owed a fiduciary duty to their customers. The Supreme Court has now heard the appeal in relation to that decision.

The current position is that lenders are liable if there was anything less than full disclosure, which is a high threshold. There are several points the Supreme Court has had to consider which includes (1) what amounts to sufficient disclosure of fees, (2) if small fees at a certain level do not require explicit disclosure and (3) when lenders are liable if leaders fail to disclose commissions properly.

If the Supreme Court upholds the ruling of the Court of Appeal, it is estimated that the decision could cost lenders up to £30bn or more in compensation claims from car buyers who may have been charged hidden commission. Banks, such as Barclays and Lloyds, are preparing for significant payouts, with Barclays setting aside £90m and Lloyds £700m to cover claims. The case is seen as pivotal for the future of consumer finance regulation, with experts likening it to the PPI scandal in terms of its potential impact on banks.

The FCA have indicated that it will create an industry-wide redress scheme if the Supreme Court rules that consumers were unfairly charged commission. The FCA say that it would confirm within six weeks of the Supreme Court's decision whether to press ahead with an industry wide redress scheme as an alternative to consumers having to complain to bring complaints against finance companies.

To read more please click here.

Accountants

Revised Code of Ethics for ICAEW

The Institute of Chartered Accountants for England and Wales (ICAEW) have updated their code of ethics (the Code) for 2025, so that it aligns with the International Ethics Standards Board for Accountants (IESBA)'s own code.

Key revisions are aimed at reinforcing public trust in the profession by reminding accountants of their professional obligations to act in the public interest and with an appropriate degree of scepticism when undertaking audit and review work. This will ensure accounting professionals remain abreast of the rapid technological changes in the sector and avoid the associated pitfalls. There is also more extensive and detailed changes to part 4A of the Code, on international audit standards.

The revised Code, which takes effect from 1 July, can be found here, and the press release can be found here.

Tax Practitioners

Proposals for greater powers for HMRC to disrupt promoters of tax avoidance

The purpose of these proposals is to give HMRC greater powers and stronger sanctions to disrupt the business model promoters rely on.

The consultation closes on 18 June 2025.

Further information can be found here.

HMRC increases interest rates for late tax payments

On 26 March 2025, at the Spring Statement, the government announced that late-payment penalties for most taxes and duties will increase from 7% to 8.5%.

Late payment interest was set at the Bank of England (BOE) base rate (4.5%) plus 2.5% but in an attempt to clamp down on overdue tax, this will increase to BOE base rate plus 4% making a total rate of 8.5% from 6 April 2025.

It is hoped that the increase will encourage prompt payment and ensure fairness for those who pay their tax on time.

To read more, please click here.

HMRC publishes consultation on behavioural penalties 

As part of the Spring 2025 Statement, HMRC have published an open consultation on the reform of behavioral penalties, which focuses on improving the system used to impose penalties for tax inaccuracies and failure to notify HMRC about relevant changes. The consultation explores how to make the penalty system clearer, fairer, and more effective in encouraging compliance.

The consultation proposes two different approaches to reforming penalties for inaccuracies and failure to notify:

1. Reforming the existing system: this would involve retaining key aspects of the current system but simplifying how penalties are calculated and applied.

2. Introducing a new system: this would involve a more fundamental redesign of penalties to improve clarity and consistency.

The closing date for comments is 18 June 2025. 

To read the full consultation, please click here.

HMRC Spotlight Notice 68: 'advertising' and 'loyalty points'

HMRC has issued a Spotlight Notice (the Notice) in respect of a tax avoidance scheme. The scheme usually operates where a company pays the scheme promoter a sum of money said to be in relation to advertising services. This sum is then offset against the taxable profit of the company, by the company claiming Corporation Tax and VAT input tax in respect of the advertising services.  

The promoter then provides pre-paid cards, often to a value equal to 80% of the total amount of 'advertising' spend, to directors and associates of the company, being described as a 'loyalty point' scheme. The scheme promoters also claim that these loyalty points do not amount to taxable income for directors and associates.

The Notice sets out in no uncertain terms that HMRC's position on such arrangements outcome that they do not work. This is said to be for a number of reasons:

1. The 'loyalty points' are provided by reason of the recipients' employment and thus fall to tax under HMRC (EIM21618).

2. Corporation tax deductions may not be permissible, as the 'advertising' spend is unlikely to be 'wholly and exclusively for the purpose of the business'.

3. The VAT component of the payments may not qualify as input VAT for tax purposes.

You can read more here.

R&D Tax Relief: HMRC considers advance clearances to fight fraud and boost certainty

The UK government is taking steps to tighten up the R&D tax relief system, aiming to curb error and fraud while providing businesses with more clarity. As part of the Spring 2025 Statement, HMRC have launched a consultation on introducing advanced clearances for R&D tax relief claims.
                                                                              
HMRC is exploring two options, a voluntary scheme and a mandatory scheme. The voluntary scheme would avoid adding extra administrative burden to businesses that don't want to participate. However, it might not deter those deliberately making non-compliant claims. The mandatory scheme is seen as potentially more effective in tackling non-compliance and providing certainty, especially in sectors with high levels of misuse.

Due to resource constraints, the scheme would likely be targeted. The voluntary scheme would potentially be available for high-potential companies, and those in sectors outlined in the "Invest 2035" Green Paper. The mandatory scheme would potentially apply to companies specified in legislation, based on sector, size, and past compliance.

The consultation also seeks input on whether a minimum expenditure threshold should be introduced, and there is also a question as to whether agents who previously helped with claims should be registered with HMRC, or be members of a professional body.

Views are sought on the stage at which clearance should be sought. Options include: 1) before research activity starts, 2) during research activity but before a claim is made and 3) after a claim is made but before payment.

The consultation is open until 26 May 2025.

To read more please click here.

Upper Tribunal holds that a payment to a EBT is not taxable

On 6 December 2024, the Upper Tribunal handed down judgement in M R Currell Ltd v HMRC [2024] UKUT 00404 and found that a contribution from a company to an employee trust benefit (EBT) which then made a loan to a director of the company, would not constitute taxable earnings. 

The company established an EBT and contributed £800,000. The EBT then loaned the contribution (£800,000) to a director of the company, with the loan payable back to the company 5 years later. HMRC took the view that the £800,000 contribution made by the company to the ETB, was taxable and thereby, the company owed c.£400,000 in tax. 

The First Tier Tribunal agreed with HMRC. Their position was that the £800,000 contributed to the ETB was taxable on the basis that that they considered that the contribution to the ETB was a reward to the director for his services. Thereby, the £800,000 would be deemed as earnings which would be subject to income tax and NI contributions. 

The First Tier Tribunal's decision was ultimately dismissed by the Upper Tribunal, who agreed with the company that neither the contribution to the EBT (nor the principal of the loan) to the director were taxable, on the basis that the loan made to the director - had a resulting obligation to repay the loan. 

To read RPC's commentary on the decision, please click here.

Pensions

The Pensions Regulator extends its oversight to professional trustee firms

The Pensions Regulator (TPR) is introducing a framework to oversee professional trustees (PT) to protect savers. The PT market has grown significantly, with over half of UK pension schemes using professional or sole trustees. TPR has been gathering evidence from major trustee firms to understand risks, opportunities, and conflicts. Its' findings revealed diverse business models and an increase in professional trustees, each bringing different risks and opportunities to savers. 

Due to this, TPR is extending its oversight of PT firms seeking to influence better outcomes for savers.

To read more, please click here.

FOS Developments

FOS to charge CMCs to refer cases from April

Starting in April 2025, the Financial Ombudsman Service (FOS) will introduce a £250 fee for Claims Management Companies (CMCs) to refer cases. This change is part of FOS's strategy to handle the growing volume of complaints more efficiently, and to improve the quality of referrals it receives. However, it will still be free for consumers to submit a complaint directly or through a charity or voluntary organisation.

Under the new rules, CMCs will be able to bring 10 cases to the FOS for free each year, but after that they will be charged £250 per case. If the complaint is upheld in favour of the consumer they represent they will receive £175 back in credit. Additionally, where a complaint is not upheld or is withdrawn, the business against whom the complaint was made will pay a reduced fee of £475 as opposed to the £650. 

The fees will apply when CMCs refer complaints that fall within the FOS's remit, with the aim of ensuring that only well-prepared, justified cases are sent through. This step is designed to discourage spurious or poorly documented complaints

To read more please click here.

Ambitious year ahead – FOS set goals for case resolutions in 2025/2026

The Financial Ombudsman Service (FOS) aims to resolve 20% more cases in the 2025/26 financial year. 

Despite recent surges in complaints, particularly around motor finance commission, the FOS is focusing on improving the redress system to deliver faster resolutions and greater certainty for businesses and consumers. The FOS plan to: 1) modernize case-handling processes 2) increase workforce flexibility and 3) use digital tools to streamline services.

The FOS will maintain fees for businesses who receive a complaint (currently at £650) and will introduce a new charging model for professional representatives, as discussed above. It is hoped that this will encourage better evidenced and more carefully considered complaints. The FOS have also confirmed that the maximum compensation businesses may have to pay will rise to £445,000 which started on 1 April 2025.

Whilst the number of complaints in 2025/26 is expected to rise slightly compared to previous years, it will be a significant decrease from the 330,000 cases expected in 2024/25 due to motor finance complaints. The FOS continues its focus on fair and timely dispute resolution, aiming to improve efficiency and provide valuable insights to businesses, enhancing the redress framework for both consumers and the industry.

To read more, please click here.

FOS increases compensation limit

As mentioned in the previous article, effective 1 April 2025, the FOS has increased compensation limits to £445,000 for complaints referred to the service on or after 1 April 2025 regarding acts or omissions taking place on or after 1 April 2019. 

The £15,000 increase in compensatory limits is part of FOS' overall strategy to resolve more complaints efficiently. The FCA have stated that their compensatory limits are set by the regulator and are adjusted each year to account for inflation as measured by the Consumer Prices Index (CPI). 

Additionally, any complaints referred to the service on or after 1 April 2025 regarding acts or omissions taking place after 1 April 2019 have had their compensatory limits increased to £200,000. 

The increase has been confirmed in DISP 3.7 'Awards by the Ombudsman' which can be found here.

Relevant case law updates

Court of appeal finds that 'dishonesty' is an essential element of accessory liability in half secret commission case

On 6 December 2024, the Court of Appeal handed down judgment in Expert Tooling and Automation Ltd v Engie Power Ltd [2025] EWCA Civ 292 where it was re-affirmed that dishonesty was an essential component in establishing accessory liability.

Tooling (a manufacturing business) engaged a third-party intermediary (TPI) to broker their energy contracts. The TPI put in place a number of energy contracts for Tooling, with the energy supplier Engie. Whilst Tooling never paid the broker commission directly, the broker was remunerated via commission being incorporated into the unit price of energy consumed. 

Whilst Tooling was aware that the broker would receive commission (via Engie), they were unaware of how much commission would be paid to the TPI, and most notably the fact that the commission was built into their unit price for energy consumption (thereby, they were essentially paying the commission). Tooling issued proceedings against Engie (the broker dissolved in 2022) on the basis that Engie procured the TPI's breach of fiduciary duty by paying them commission. Therefore, Tooling alleged that they were an accessory to liability. The High Court ruled in favour of Engie, and found that they had not been fundamentally dishonest, and therefore, were not an accessory to liability. 

Notably, in the Court of Appeal, Tooling argued that the Court should follow the precedent set in the motor commission finance test case, Johnson v FirstRand Bank Limited, in that to establish fundamental dishonesty, the lender (the supplier, Engie in this case: 1) knew it was paying the TPI a commission and (2) knew that there was a fiduciary relationship between the TPI and Tooling. This was ultimately dismissed by the Court of Appeal on the basis that Tooling did not plead dishonesty when they originally issued proceedings. Therefore, Tooling had not provided evidence of dishonesty and could not adduce further evidence at this stage. 

To read RPC's commentary on the decision, and the impact this could have on motor commission finance cases, please click here.

No without prejudice privilege for reports or surveys unilaterally commissioned by a third party 

The High Court ruled that communications between a party and a third party regarding a survey, even if the purpose was to aid settlement negotiations, do not qualify for without prejudice privilege (WPP). 

In BNP Paribas Depositary Services Ltd and another v Briggs & Forrester Engineering Services Ltd [2024] EWHC 2575 (TCC), the Claimants asked the court whether the Defendant should be barred from using certain survey reports. The Claimants provided the reports to the Defendant's solicitors, marking them as "without prejudice" and setting conditions for their use.

The judge referenced the case of Rabin v Mendoza [1954], which allowed WPP to apply to communications with third parties in some circumstances, particularly when the communications were in relation to aid settling a dispute. However, the judge found in this instance that WPP did not apply because the Claimants had unilaterally commissioned the reports and there was no mutual agreement between the parties to use them in settlement efforts.

The court also ruled that the Defendant could use the reports since they were not privileged and should have been disclosed, without the protection of WPP.

To read the judgment, please click here.

With thanks to this week's contributors: Nitin Mathias, Haiying Li, Rebekah Bayliss, Damien O'Malley, Faheem Pervez, Joe Towse, Shauna Giddens.