cashback on current account switching

kidmugsy

Do these payments - as from Halifax, for example - count as taxable income? If they do, can a non-payer of income tax claim back the tax?

bristolleedsfan

kidmugsy wrote: »

Do these payments - as from Halifax, for example - count as taxable income? If they do, can a non-payer of income tax claim back the tax?

When Halifax as an example pay out a switching bonus it is paid out as Cash, it does not count as Taxable Income

http://www.telegraph.co.uk/finance/personalfinance/investing/9953193/HMRC-to-tax-fund-cashback-from-next-week.html

"HMRC dismissed claims that cashback in other industries could be taxed. A spokesman said: "There is no question of tax becoming payable on cashbacks received from credit, debit and loyalty cards or any other kind of cashback payment"

bowlhead99

The fiver a month they pay you on an ongoing basis for using the account is structured as interest and might represent a relatively high or a low rate depending on how much you have in there. Either way it's clear in their T&C that it is interest and the fiver is net of basic tax.

However, the one off lump sum inducement to come over to the dark side from wherever you used to bank, is not an interest rate or compensation for making a deposit for a period of time. Cashback like that, similar to credit card cashback on your expenses or loyalty points at Tesco, isn't taxable - albeit my understanding of that is coming from unnamed HMRC spokespeople in newspapers in recent years, rather than a specific point of law I could name.

Thinking laterally it might be different if you were a business customer receiving an inducement... but as this account is designed for individuals who don't get tax relief on their own expenditure, this one off 'negative expenditure' is not something you would expect to pay tax on. If you play your cards right you'll not incur bank charges over your next x years with the bank and will overall be in profit from the move, but HMRC aren't going to tax you the difference.

IMHO.

kidmugsy

Thanks to you both.

TheTracker

I agree with the above.
But I do foresee a day when expenditure related cashback - credit cards, topcashback, quidco - is taxed. That seems fair to me, and is the case in other countries.
The taxman is surely targeting the rort when business expenses are paid through such means and a personal taxpayer banks the reward. Ever were it so on reward points.

colsten

TheTracker wrote: »

I agree with the above.
But I do foresee a day when expenditure related cashback - credit cards, topcashback, quidco - is taxed. That seems fair to me, and is the case in other countries.
The taxman is surely targeting the rort when business expenses are paid through such means and a personal taxpayer banks the reward. Ever were it so on reward points.

Who is going to administer this? At what cost? How much tax would be raised?

Which other countries tax cashback?

bowlhead99

In USA, credit card reward points or miles, or a mail-in rebate on buying something, is considered a purchase price reduction, like it is here. As mentioned above by TheTracker, it is more of a grey area where a company gets a tax deduction for their business expenses and then an individual employee doesn't pay the full amount for the good or services due to the cashback.

And my understanding is that cash rewards (or even air miles rewards which have an imputed value) as a one off for signing up to a service - like a bank account switch or new brokerage account- are taxable and you may have them reported to IRS. There was a bit of a hoo-haa a couple of years ago when Citi were giving away oodles of free airline miles and giving their customers a copy of the tax reports to show the value of what they'd been given at 2.5 cents a mile.

The US tax environment is quite different to here with all sorts of money you receive as gifts or prizes being routinely taxable on somebody (if you win a million on the lottery or a car on a slot machine in Vegas you will not be taking home a million or driving the car away without paying tax). To support it, the US is more reporting-centric and everyone files a tax return every year routinely (with most people getting tax refunds once they claim a whole string of deductibles). So, different parts of the world will find it more or less easy to track and tax such events.

TheTracker

colsten wrote: »

Which other countries tax cashback?

Fair cop. I thought the U.S. did but an Internet search shows not.
I believe the logic for whether to tax is based on whether the cashback is in effect a deferred discount on the purchase price (rebates) or a reward for doing little or nothing (joining reward).

YorkshireBoy

TheTracker wrote: »

Fair cop. I thought the U.S. did but an Internet search shows not.
I believe the logic for whether to tax is based on whether the cashback is in effect a deferred discount on the purchase price (rebates) or a reward for doing little or nothing (joining reward).

When I looked into this a few years ago on the HMRC website, I found the tax situation was dependant on whether the benefit was "ongoing" or not.

If it was ongoing (as in the case of the Halifax £5 Reward) then it was taxable. If it wasn't ongoing (as in switching incentives) then it wasn't taxable.

The information is almost certainly still on the HMRC website if anyone wants to check.