Tax on cahsback

optiMISER_3 · 5 August 2008 at 3:48PM

Cashback is great, but is it taxable?

At what point does it make you liable to fill in a self assessment form, or if you already do fill in such a form which types of cashback should you declare?

Or can cashback be regarded as a discount on purchased items (albeit roundabout) rather than income?

Examples:

Supermarket points - not always given in cash terms but are sometimes and in any case can only be taken off shopping?

Credit card cashback - Shell card expressed in pounds but only redeemable against Shell fuel purchases, Egg money given back as cash into account?

Cashback from manufacturers, mainly for computer items, as in US system, increasingly used here.

Cashback from referral sites such as quidco?

Does anyone give any thought to this or do they just ignore it and not declare it (it could get quite complicated keeping track and might significantly impact the benefit of cahsback in time terms if this extra administrative load is accounted for, as well as of course the tax bill itself, and having to set the money aside to pay for the tax)?

Do the inland revenue have any relevant guidance on this?

epsilondraconis · 5 August 2008 at 4:17PM

I'm unable to provide any evidence of this; however I remember this question being asked before on this forum and the conclusion drawn at that time was that cashback is taxable.

johnllew · 5 August 2008 at 4:26PM

The Revenue view on cashback was outlined in Statement of Practice SP4/97. Basically, cashback on normal personal transactions (from cashback sites or cashback credit cards, cashback on mortgages etc) is exempt but tax is likely to arise on:

- cashback earned on purchases in the course of one's business or in respect of expenditure made on behalf of an employer.

- cashback earned (particularly from cashback wensites) where no purchase is involved, or where multiple cashback transactions are made where there is a profit (for example Magazine Group trial purchases where cashback exceeds the trial cost).

This has been discussed here a few times before.

johnllew · 5 August 2008 at 4:30PM

See B7 on page 172: http://www.hmrc.gov.uk/practitioners/sop.pdf

B7 - In general, ordinary retail customers purchasing goods, investments or services at arm's length will not be liable to income or capital gains tax in respect of any commission, discounts or cashbacks received by them.

optiMISER_3 · 5 August 2008 at 5:02PM

Thanks for the replies, apologies for not searching, I just posted without thinking.

I can confim that other posts mention the link to http://www.hmrc.gov.uk/practitioners/sop.pdf

and I just saw the SP4/97 is the relevant section of this. Thank you anyway johnllew.

It does seem to suggest that in most cases cashback isn't taxable, but is rather vague in places. Of particular interest is:

where inducements or rewards offered to customers take the form of a series of payments (and are not simply capital sums calculated in advance but paid in instalments) they may be taxable as income in the recipients' hands

So if your £100 cashback is paid in 4 £25 installments, it might be taxable?

Also, for schedule D, paras 12 and 13, it effectively says that the comission that is passed on from businesses to consumers where the business is an intermediary (i.e. an IFA or quidco) then it will be taxable. I presume this means that the business will be liable for tax. i.e. so Quidco when working out the comission they can give you must first take off tax.

It seems that my post was not entirely without merit as even though he remembered it had been discussed before, epsilondraconis came to a different conclusion to johnllew. i.e. it still hasn't been resolved in any way. In addition Martin does not seem to mention this important point on any of his main cashback articles.

Perhaps this is the wrong section to discuss this further but I would be interested as to what the actual practice is of those who do receive substantial cashback.

I would imagine almost everyone just doesn't bother when it is for personal purchases which is mostly in line with the IR guidance above, certainly I think you would be very unlucky if prosecuted for evasion for not declaring cashback, but maybe it would be prudent to set some of it aside to cover potential tax bills.

Mikeyorks · 5 August 2008 at 7:07PM

optiMISER wrote: »

Perhaps this is the wrong section to discuss this further but I would be interested as to what the actual practice is of those who do receive substantial cashback.

That your initial thought (this is a discount) is correct when applied to 'personal' cashback. I've had as much as £5k in a single transaction when switching Mortgages, many years ago, and don't expect HMRC to ever beat a path to my door in respect of it. Nor the 5p per litre off petrol if you spend over £50 at Sainsburys - despite others are paying the full price . etc . etc.

certainly I think you would be very unlucky if prosecuted for evasion for not declaring cashback, but maybe it would be prudent to set some of it aside to cover potential tax bills.

...... sorry, but that's OTT. If it's personal purchases - forget it - HMRC won't be reminding you.

ajbisgr8 · 6 August 2008 at 8:19PM

If the cashback is for something you've bought with money that has already been taxed e.g. on a rewards website, or clubcard points, or cashback from a phone etc etc it is essentially a discount on the product paid at a later date rather than a discount off the product price - and you wouldn't expect to have to pay tax every time you bought something on sale would you?

If the cashback is for something like clicking links and no actual purchase is made then yes, in theory it would be taxable, as would cashback on something which you bought and have claimed tax relief or expenses for (in effect you have not paid tax on the original purchase). However unless you're earning thousands of pounds through cashback I really wouldn't be too concerned. Companies are getting away without paying millions because HMRC are so short staffed, so a few quid cashback is hardly going to set alarm bells ringing.

Llyllyll · 6 August 2008 at 9:19PM

ajbisgr8 wrote: »

...Companies are getting away without paying millions because HMRC are so short staffed, so a few quid cashback is hardly going to set alarm bells ringing.

Never were truer words written...

Tax on cahsback

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