Tax on Cashback?

Zanderman

sinizterguy wrote: »

My answer was in reply to the credit cards.

I did miss the part about the 123 accounts.

I have absolutely no idea about those.

ALL actual cashback - that is, a refunded amount from a payment you've already made, has to be tax-free. It's just money off your purchase, paid a little while later.

You've paid your tax on it already - as you pay tax on your income, and it's your income you use to pay for the service/product. So if you get cashback on the payment for the service/product you're just getting some of your already-taxed income back. It can't be taxed again.

ETA: Another category of 'cashback' - the paying of incentives (e.g. Halifax Rewards Credit Card £5 if you spend over £300 per month, or the various account switching incentives etc) aren't really cashback of course, they're incentives. But my understanding is that those are tax-free.

Not to be confused with some other 'Rewards' like the Halifax Current Account £5 Rewards which is considered (why?) as interest and is taxed at source (so is actually £6.25 gross, I think)

jennifernil

And that £1.25 per month tax can be reclaimed if you are not a taxpayer.

ricz_1

Zanderman wrote: »

Not to be confused with some other 'Rewards' like the Halifax Current Account £5 Rewards which is considered (why?) as interest and is taxed at source (so is actually £6.25 gross, I think)

Quite correct.

Lansdowne

Thanks to the original questioner as I have been meaning to ask about tax on these "alternatives to interest".

Zanderman wrote: »

ALL actual cashback - that is, a refunded amount from a payment you've already made, has to be tax-free. It's just money off your purchase, paid a little while later.

I'm not convinced by this argument. Normal cashback is the supplier reducing the cost of your purchase. In the 1-2-3 case the supplier still gets the full cost and it's the bank who pays the customer an amount that just happens to be based on the size of a transaction rather than the size of the balance.

Zanderman

Zanderman wrote: »

ALL actual cashback - that is, a refunded amount from a payment you've already made, has to be tax-free. It's just money off your purchase, paid a little while later.

Lansdowne wrote: »

I'm not convinced by this argument. Normal cashback is the supplier reducing the cost of your purchase. In the 1-2-3 case the supplier still gets the full cost and it's the bank who pays the customer an amount that just happens to be based on the size of a transaction rather than the size of the balance.

Sorry you're not convinced!

Two points - firstly that money paid to you is described as 'cashback' - and so, regardless of what you think it actually is, that is what it is classified as in payment terms. And that is the only classification we have to go on. HMRC shouldn't be interested in 'cashback'.

Secondly, your argument that it's the bank that pays the customer, and so it isn't cashback, is difficult to confirm. Does anyone know whether, say, Santander might have an arrangement with energy companies? But if my first point is correct, the precise source is irrelevant.