Are bank incentives counted as income?

Kevi

I'm thinking about First Direct offering £100 incentive to join, M&S offering vouchers, Santander offering % rewards on direct debits etc. Should I be declaring these incentives on my tax return? Do they count as unearned income or interest? If interest, I guess they should come under the new interest allowance, but not if it is classed as income. I have read elsewhere that cashback and loyalty points should properly be considered as a discount and so not an income, but it seems to me these are different. I've tried to find a discussion on this topic, but failed so here it is.

HappyMJ

Kevi wrote: »

I'm thinking about First Direct offering £100 incentive to join, M&S offering vouchers, Santander offering % rewards on direct debits etc. Should I be declaring these incentives on my tax return? Do they count as unearned income or interest? If interest, I guess they should come under the new interest allowance, but not if it is classed as income. I have read elsewhere that cashback and loyalty points should properly be considered as a discount and so not an income, but it seems to me these are different. I've tried to find a discussion on this topic, but failed so here it is.

No they generally do not count as income.

However, the regular £5 Halifax payment does count as income. You would enter the figure as "other income" on your tax return. It's tax paid (the gross amount is £6.25) so there should be no further tax to pay if you're a basic rate tax payer.

Ed-1

Kevi wrote: »

I'm thinking about First Direct offering £100 incentive to join, M&S offering vouchers, Santander offering % rewards on direct debits etc. Should I be declaring these incentives on my tax return? Do they count as unearned income or interest? If interest, I guess they should come under the new interest allowance, but not if it is classed as income. I have read elsewhere that cashback and loyalty points should properly be considered as a discount and so not an income, but it seems to me these are different. I've tried to find a discussion on this topic, but failed so here it is.

No. Switch incentives count as cashback and cashback is not taxable. However Reward payments on current accounts count as taxable income (though not interest).

SuperHan

Ed-1 wrote: »

No. Switch incentives count as cashback and cashback is not taxable. However Reward payments on current accounts count as taxable income (though not interest).

Not quite - interest is taxable income, the first £1,000 is just taxable at 0% (for a basic rate tax payer).


It'll still need to go on to your tax return, as there is tax payable on some/all of it if you're a higher rate/additional rate tax payer.

Ed-1

SuperHan wrote: »

Not quite - interest is taxable income, the first £1,000 is just taxable at 0% (for a basic rate tax payer).


It'll still need to go on to your tax return, as there is tax payable on some/all of it if you're a higher rate/additional rate tax payer.

To clarify, I meant that the Reward payments are not classed as interest; not that interest is not taxable.

Kevi

Ed-1 wrote: »

No. Switch incentives count as cashback and cashback is not taxable. However Reward payments on current accounts count as taxable income (though not interest).

Thanks Happy MJ and Ed-1. Forgive me for getting pedantic here, but HMRC have been known to get pedantic also ;-)
So, Santander or NatWest (the two I know about) offering 3% (or 2% or 1%) on selected Direct Debits, are rewards and are taxable as 'other income'. I hope I can deduct their account fees and only report the net payment from them. I guess the clues being in whether the banks describe them as incentives, cashback or rewards. Hope I can trust the bank wording!

HappyMJ

Kevi wrote: »

Thanks Happy MJ and Ed-1. Forgive me for getting pedantic here, but HMRC have been known to get pedantic also ;-)
So, Santander or NatWest (the two I know about) offering 3% (or 2% or 1%) on selected Direct Debits, are rewards and are taxable as 'other income'. I hope I can deduct their account fees and only report the net payment from them. I guess the clues being in whether the banks describe them as incentives, cashback or rewards. Hope I can trust the bank wording!

No they are not income either. They are not regular like the Halifax monthly reward payment is. They are not rewards they are cashback on your household bills payments, require you to spend money and the amount paid to you is directly linked to the amount you have spent. The Halifax reward payment is not linked to the amount you spend. You could have a one penny direct debit and you will still get £5 (net).

Don't worry about it too much. The amounts are so small the HMRC won't be too concerned if you fail to declare them. If you're dodging tax elsewhere they'll probably charge a penalty but if your only offence is failing to put the £5 monthly payments on your tax return then they won't be bothered. They are paid with the tax deducted so only higher rate taxpayers have to pay extra tax on them.