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HMRC internal manual

Banking Manual

Bank compensation restriction: excluded expenses: single errors with compensation payable to a single customer

The exclusion at section CTA09/S133C(2) permits a disclosure in a relevant statement to be disregarded if the disclosure is concerned with a liability to pay compensation to or for the benefit of one (and only one) customer in respect of a single error. An error may be regarded as a single error even if it impacts on more than one transaction where it is the same error that gives rise to the compensation expense.  

“Customer” is defined at CTA09/S133J, and has a very wide meaning. It includes anyone who uses, has used, or may have contemplated using the services of the company; or who has relevant rights or interests in relation to a financial service provided by the company. 

Where, for example, the customer is a corporate entity which has shareholders, a strict reading of the legislation would conclude that any compensation could be said to be to or for the benefit of both the entity and, ultimately, its shareholders. This would make the exclusion at CTA09/S133C(2) ineffective in a large number of situations. 

HM Revenue and Customs accepts that where there is a single error in respect of services provided by a banking company to a counterparty, a shareholder (whether direct or indirect) of that counterparty should not be considered a “customer” of the banking company under CTA09/S133J(1)(a) merely because the shareholder may use, have used, or have contemplated using the services of the banking company in a context unrelated to the subject matter of the compensation; nor under CTA09/S133J(1)(b) merely because of its interest in the shares of the counterparty.

HM Revenue and Customs will consider other scenarios where a single error affects a company and its shareholders or other members in the same group on a case by case basis.

See BKM203550 for examples of the application of this exclusion.