Halifax "reward"- Interest?

sterlingsafeguarder

The MSE website has said that all tax paying interest in banks and building societies will be subject to the new Tax Allowance starting today.
As a Reward current account holder with Halifax bank I enquired today if they were going to apply gross interest to their monthly reward (if your account stays in credit for the whole month).
They said they wouldn't and it would continue to paid net to tax payers, as it wasn't interest. Furthermore he said that it was an arrangement endorsed by HMRC.
So by calling it a reward for (for diligent account holders) they are avoiding paying it out tax free. Doesn't the amount credited to the account monthly amount to "interest" by any other name?
Any thoughts out there on Halifax's semantic interpretation as I recall that interest is paid as a reward for letting someone else use your money!
"Interest"........"reward," isn't it the same thing?

AndyT678

No. It's not interest as already endlessly discussed in threads like these and many others.

https://forums.moneysavingexpert.com/discussion/5438739

https://forums.moneysavingexpert.com/discussion/5438989

xylophone

Strictly speaking the "reward" is "other income"?

I suppose it's either ring HMRC (cost of a phone call) or write (cost of a stamp) to reclaim....or register for a personal tax account on line?

colsten

sterlingsafeguarder wrote: »

T
So by calling it a reward for (for diligent account holders) they are avoiding paying it out tax free. Doesn't the amount credited to the account monthly amount to "interest" by any other name?
Any thoughts out there on Halifax's semantic interpretation as I recall that interest is paid as a reward for letting someone else use your money!
"Interest"........"reward," isn't it the same thing?

Assuming you are actually of the view that reward and interest are the same, I'll explain.

It's called a reward as it is a reward. Apart from a negative balance, the balance in your account is totally irrelevant to the amount paid monthly. E.g. you can have a balance of £0 at the end of each day and still get the £5. Same if your balance is above £0 all through the month.

If Halifax paid interest, they would have published an interest rate and you would get x% of the balance, calculated daily on the balance in your account. So if your balance was £0 throughout the month, you would get paid £0 interest. They would probably also have published an upper limit on which they pay interest, like all other current account providers who offer interest on their CAs do.

I hope this explains why interest and rewards aren't the same thing.

Aretnap

sterlingsafeguarder wrote: »

So by calling it a reward for (for diligent account holders) they are avoiding paying it out tax free.

You make it sound as if Halifax are gaining something from this interpretation. They're not. The extra £1.25 goes to HMRC. Halifax get no benefit from withholding it - other than possibly that "£5/month" makes for a slightly catchier advertising slogan than "£6.25/month".

As above if you're a non-taxpayer you can contact HMRC yourself and reclaim the extra £1.25/month, however as it's not interest it's not covered by the personal savings allowance so you can only do this if your total income from all sources is less than the personal allowance.

polymaff

Same goes for the nett payment made by Barclays Blue Reward.

I'd bet that the treatment of both Rewards is based upon this HMRC document:

http://www.hmrc.gov.uk/manuals/saimmanual/SAIM8020.htm

For the Halifax Reward, it is entirely "pure profit". For the Blue Reward, the "Pure Profit" is the reward minus the account fee.

jimjames

sterlingsafeguarder wrote: »

"Interest"........"reward," isn't it the same thing?

Since you seem to think it's the same thing, can you explain what the interest rate is for my reward account?

My balance is zero and I get paid £5 reward per month.

Thanks

Over62

My OH is a higher rate taxpayer and has been reporting the Reward to HMRC and paying additional tax on it. So, should this not have been included as his income?

polymaff

Over62 wrote: »

My OH is a higher rate taxpayer and has been reporting the Reward to HMRC and paying additional tax on it. So, should this not have been included as his income?

I take it you meant to say taxable non-savings income. In which case, Yes. I don't suppose that (s)he'll be sent to the Tower, though

Over62

I was looking for something else on the Halifax website and came across this:

This payment is ‘net’ of income tax, which means we pay it after taking off income tax at the rate set by law (currently 20%). If you’re a higher-rate taxpayer, you may have to pay extra income tax on the reward payment. (The gross amount is £6.25. This is the amount before income tax is taken off.)

So 1. it looks like we were right in paying the higher rate tax

but 2. surely the reward should now be paid gross?

colsten

Rewards are income, not interest. Only interest gets paid gross. Been discussed to death already on this thread.