Halifax Reward and the new Tax free Savings

gt94sss2

YorkshireBoy wrote: »

So, does the monthly Reward payment meet all 4 'characteristics' shown? If it does, then it's an 'annual payment' insofar as determining whether it's taxed or not. Wouldn't you agree?

Having read the 4 'characteristics' and knowing something of the way government regulations are worded, I would say that HMRC has an very good case for concluding that the Reward payments are not annual payments - should they wish to challenge Halifax.

For instance, I don't think the Reward payments meet the 4th characteristic:

It must represent pure income profit to the recipient. A sum is ‘pure income profit’ if - like interest - it comes to the recipient without he or she having to do anything in return.

You have to do something to qualify for each Reward payment - pay in £750/month and have two direct debits paid from an account each month - its not paid if you don't.

Having said that, since I don't think HMRC would benefit financially from challenging Halifax, they could easily have decided not to bother querying this at this time.

Ed-1

gt94sss2 wrote: »

Having read the 4 'characteristics' and knowing something of the way government regulations are worded, I would say that HMRC has an very good case for concluding that the Reward payments are not annual payments - should they wish to challenge Halifax.

For instance, I don't think the Reward payments meet the 4th characteristic:



You have to do something to qualify for each Reward payment - pay in £750/month and have two direct debits paid from an account each month - its not paid if you don't.

Having said that, since I don't think HMRC would benefit financially from challenging Halifax, they could easily have decided not to bother querying this at this time.

It is interesting as Halifax and Co-op deduct 20% tax off their reward payments whereas Barclays don't.

masonic

gt94sss2 wrote: »

It must represent pure income profit to the recipient. A sum is ‘pure income profit’ if - like interest - it comes to the recipient without he or she having to do anything in return.

You have to do something to qualify for each Reward payment - pay in £750/month and have two direct debits paid from an account each month - its not paid if you don't.

That's an interesting point, although with several interest-bearing accounts you have to do something to receive interest, so it seems the implicit assumption that interest "comes to the recipient without he or she having to do anything in return" is also challenged by the hoops banks make us jump through.

masonic

Ed-1 wrote: »

It is interesting as Halifax and Co-op deduct 20% tax off their reward payments whereas Barclays don't.

Barclays payments are true cashback aren't they? (i.e. the refund of part of the cost of a financial transaction)

Ed-1

masonic wrote: »

Barclays payments are true cashback aren't they? (i.e. the refund of part of the cost of a financial transaction)

The £7 Blue Loyalty Rewards are very much the same as Halifax Reward payments and Co-op Everyday Rewards paid when you credit £800 and pay out 2 direct debits. The only difference is that Barclays has a £3 fee.

masonic

Ed-1 wrote: »

The £7 Blue Loyalty Rewards are very much the same as Halifax Reward payments and Co-op Everyday Rewards paid when you credit £800 and pay out 2 direct debits. The only difference is that Barclays has a £3 fee.

Ah, I wasn't aware the reward was higher than the fee without taking out additional products like insurance. It seems at least some of that £7 should be taxable, doesn't it... and on checking it does state in the Additional Conditions:

The rewards that you’ll receive for being part of Barclays Blue Rewards may be subject to income tax and you may need to declare them to H M Revenue & Customs.

So perhaps too complicated for Barclays to work it out, so they leave it up to the customer to do the right thing?

zagfles

where_are_we wrote: »

Following a recent switch to a Halifax Reward account and an attempt to submit an R85 claim form as a non-taxpayer in order to get a "gross" reward the following was received -
"Unfortunately, we are unable to refund any tax paid on the reward value credited to your account as this is a reward payment and not interest paid on funds held in your account.
In order to reclaim the tax already deducted from the reward you will need to wait until the end of each tax year and complete the enclosed R40 claim form and send to HMRC.
Each year you will receive an Annual Interest Summary, and you will need this information in order to complete the claim form."
Strange that the "reward payments" will be included in an "Annual Interest Summary" when they are "not interest paid on funds". It looks like the £5 reward will continue after April and not rise to £6.25.

Interesting. I've just been looking into this (again).

I wonder if the so called "annual interest summary" tells you where on the R40 form you need to declare the reward payment.

Is it under "interest", which the R40 notes says for sections 3.1 to 3.7
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/419507/R40_Notes__2015_internet_v2.0.pdf

Please include income received from building societies, banks [...] from current and deposit accounts

Interesting it says "income" not "interest".

Would seem then to be the right place. However, if as often claimed here, the reward is an "annual payment", then it doesn't count for the "starting rate" of tax, which is 0% this year, previously 10%.

http://www.hmrc.gov.uk/manuals/saimmanual/saim8010.htm

Individuals or trusts receiving annual payments from UK companies will receive them under deduction of tax. Tax is deducted from annual payments at the basic rate, not the lower rate. This is because, unlike interest, annual payments are not included in the list at ITA07/S18 of income that is charged at the special rates for savings and dividend income.

So if it is actually an "annual payment", someone in the starting rate band ie earning over £10600 but less than £15600, would not be entitled to a tax refund. But by declaring it in sections 3.1 & 3.2 of the R40, they would get a tax refund.

zagfles

masonic wrote: »

That's an interesting point, although with several interest-bearing accounts you have to do something to receive interest, so it seems the implicit assumption that interest "comes to the recipient without he or she having to do anything in return" is also challenged by the hoops banks make us jump through.

Indeed - so what is the difference between the Halifax "Reward", and interest payments which require hoops to be jumped through and are limited by amount? The only difference is scale.

The Halifax say "£5 reward each month you pay in £750 or more, pay out at least 2 different direct debits and stay in credit."

Nationwide say "you get 5%pa interest on the first £2500 of your balance provided you pay in £1000 a month"

The Halifax could say "you get 50000% monthly interest on the first £0.01 in your account each month you pay in £750 or more, pay out at least 2 different direct debits and stay in credit."

Making Halifax basically the same as Nationwide, ie "you get x% interest on the first £y in your account provided you comply with z".

If one is interest then so should the other be, surely :cool:

beefturnmail

If the Halifax reward is not 'interest' presumably it will have to be recorded somewhere else on the self assessment return? If so, where should it be recorded?

masonic

zagfles wrote: »

The Halifax could say "you get 50000% monthly interest on the first £0.01 in your account each month you pay in £750 or more, pay out at least 2 different direct debits and stay in credit."

Making Halifax basically the same as Nationwide, ie "you get x% interest on the first £y in your account provided you comply with z".

If one is interest then so should the other be, surely :cool:

If Halifax did say that, then it would be interest, but in fact, Halifax pay their Reward to customers whose account balance at the close of each and every day is exactly nil. I don't think there can be any claim that the money Halifax is paying out should be classed as interest; what exactly it should be classed as is debatable.