FEES 4 Annex 11B Definition of annual income for the purposes of calculating fees in fee blocks CC1 and CC2

(1) Annual income definition for credit related regulated activities4

“Annual income” is the gross inflow of economic benefits (i.e. cash, receivables and other assets) recognised in the firm's accounts during the reporting year in respect of, or in relation to, the provision in the UK of the regulated activities specified in FEES 4 Annex 1A Part 1 as belonging to fee-blocks CC1 or CC2 as applicable.

The figure should be reported without netting off the operating costs or business expenses, but including:

(a) all interest received on loans, brokerages, commissions, fees, and other related income (for example, administration charges, overriders, profit shares etc) due to the firm in respect of, or in relation to, the provision in the UK of the credit-related regulated activities specified in FEES 4 Annex 1A Part 1 as belonging to fee-blocks CC1 and CC2 and which the firm has not rebated to clients or passed on to other authorised firms (for example, where there is a commission chain).

Plus:

(b) any ongoing commission from previous business received by the firm during the reporting year.

Plus:

(c) the “fair value” of any goods or services the firm provided to clients. This is an estimate of the amount the firm would otherwise have received for any regulated activity under (a) above, but for which it has made a business decision to waive or discount its charges.

Plus:

(d) [deleted]4

Or4

(e) The figure must be reported using the proxy measure of annual income if the firm receives no annual income of the type in 1(a) to (c) and meets the criteria in (2).4

(2) Proxy measure of annual income

(a) A firm that receives no annual income of the type in 1(a) to (c) must report its annual income using the proxy measure in (b) if:4

(i) its main business is to sell goods or supply services, and is not to carry on a credit activity in 2(a)(ii) or 2(a)(iii);4

and4

(ii) it carries on:4

(aa) credit broking in relation to credit agreements, except for credit broking in relation to buy-to-let mortgages; or4

(bb) entering into a regulated credit agreement as lender;4

or4

(iii) it carries on:4

(aa) credit broking in relation to consumer hire agreements; or4

(bb) entering into a regulated consumer hire agreement as owner.4

(b) The proxy measure for annual income is calculated:4

(i) for activities in 2(a)(ii), by multiplying the gross loan amount under all agreements falling within the activity by the percentage value at (b)(iii);4

(ii) for activities in 2(a)(iii), by multiplying the gross value of all goods under all agreements falling within the activity by the percentage value at (b)(iii);4

(iii) the percentage value is 5% plus the Bank of England base rate on the final day of the firm’s accounting reference date.4

(3) Where the firm’s regulated activities are being carried on by an appointed representative of the firm4

The firm's annual income must include income received by an appointed representative carrying a regulated activity in a relevant fee block on behalf of the firm.4

The appointed representative's annual income must be calculated in the same way as the firm's. However, to avoid double counting, the appointed representative's annual income must not include any income also recognised in the firm's accounts, including income recognised as a result of a commission sharing arrangement with the appointed representative.4

Guidance on the interpretation of this definition is presented in Table 2 of FEES 4 Annex 13 G.4